The Information Cycle and Return Seasonality

45 Pages Posted: 17 Dec 2020 Last revised: 28 Jun 2021

See all articles by Haoyuan Li

Haoyuan Li

University of International Business and Economics (UIBE)

Roger Loh

Singapore Management University - Lee Kong Chian School of Business

Date Written: June 28, 2021

Abstract

Heston and Sadka (2008) document the return seasonality anomaly—that cross-sectional stock returns depend on their historical same calendar-month returns. We propose an information-cycle explanation for this anomaly, that firms’ seasonal information releases lead to higher returns in months with such information releases, and lower returns in months with no scheduled information releases. Using past earnings announcements and decreases in implied volatility as proxies for scheduled information events, we find indeed that event-month seasonal winners and nonevent-month seasonal losers indeed drive the seasonality anomaly. Hence, return seasonality can in fact be consistent with investors’ rational response to information uncertainty.

Keywords: Return seasonality, Information cycle, Information uncertainty, Earnings announcement premium

JEL Classification: G12, G14

Suggested Citation

Li, Haoyuan and Loh, Roger, The Information Cycle and Return Seasonality (June 28, 2021). Available at SSRN: https://ssrn.com/abstract=3746737 or http://dx.doi.org/10.2139/ssrn.3746737

Haoyuan Li

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Roger Loh (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

Lee Kong Chian School of Business
50 Stamford Rd
Singapore, 178899
Singapore

HOME PAGE: http://www.mysmu.edu/faculty/rogerloh/

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