Earnings Announcement Premia and the Limits to Arbitrage

Posted: 9 Apr 2007

See all articles by Daniel A. Cohen

Daniel A. Cohen

University of Texas at Dallas - Naveen Jindal School of Management

Aiyesha Dey

Harvard Business School

Thomas Z. Lys

Northwestern University - Kellogg School of Management

Shyam V. Sunder

University of Arizona - Department of Accounting

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Abstract

We examine the factors underlying the presence of earnings announcement premia. We find that the premia persist beyond the sample period examined in prior studies (ending in 1988), although they decline in magnitude after 1988. Further, premia are lower on the expected than the actual earnings announcement dates. We document that increases in voluntary disclosures result in lower premia, despite the increase in return volatility over time. Finally, our evidence suggests that the premia are not completely eliminated because of the costs of arbitrage.

Keywords: Earnings Announcements, Announcement Premium, Preannouncements

JEL Classification: G12, G14, M41, M45

Suggested Citation

Cohen, Daniel A. and Dey, Aiyesha and Lys, Thomas Z. and Sunder, Shyam, Earnings Announcement Premia and the Limits to Arbitrage. Forthcoming, Journal of Accounting & Economics (JAE). Available at SSRN: https://ssrn.com/abstract=978782

Daniel A. Cohen (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
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Aiyesha Dey

Harvard Business School ( email )

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Thomas Z. Lys

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Department of Accounting & Information Systems
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United States
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847-467-1202 (Fax)

Shyam Sunder

University of Arizona - Department of Accounting ( email )

210 L McClelland Hall
1130 E Helen St
Tucson, AZ 85721
United States

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