When Are Extreme Daily Returns Not Lottery? At Earnings Announcements!

Posted: 23 Dec 2019

See all articles by Harvey Nguyen

Harvey Nguyen

Massey University, Massey Business School; Monash University

Cameron Truong

Monash University; Financial Research Network (FIRN)

Date Written: May 10, 2018

Abstract

Using a sample of U.S. stocks over the period 1973–2015, we find that quarterly earnings announcements account for more than 18% of the total maximum daily returns in the top MAX portfolio. Maximum daily returns as triggered by earnings announcements do not entail lower future returns. Both portfolio and regression analyses show that the MAX phenomenon completely disappears when conditioning MAX returns on earnings announcements. We further show that earnings announcement MAX returns do not indicate a probability of future large short-term upward returns. Excluding earnings announcement MAX returns in constructing the lottery demand factor results in not only a larger lottery demand premium but also superior factor model performance.

Keywords: Extreme returns, Earnings announcements, Lottery-like payoffs, Cross-sectional return predictability

JEL Classification: G11, G17, G12

Suggested Citation

Nguyen, Harvey and Truong, Cameron, When Are Extreme Daily Returns Not Lottery? At Earnings Announcements! (May 10, 2018). Journal of Financial Markets, Vol. 41, 2018. Available at SSRN: https://ssrn.com/abstract=3498731

Harvey Nguyen

Massey University, Massey Business School ( email )

Private Bag 11 222
Auckland, North Shore, Albany 0632
New Zealand

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Cameron Truong (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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