We propose that extrapolative beliefs about earnings announcement (EA) returns may contribute to the understanding of EA return patterns. construct a theoretically motivated measure investors’ expectations based on stock’s recent history returns. then show this explains cross-sectional variation in stock and investor behavior around EAs. Stocks expected have high returns, according our measure,...

The predictability of abnormal returns based on information contained in past earnings announcements is a statistically and economically significant anomaly. Neither is it illusory, nor is it an artefact of the experimental design. It may be a result of market inefficiency. Our results cannot rule out this explanation. However, we find that the magnitude of the post-earnings announcement effect...

This paper tests the implications of an information diffusion model (Lu, 2003) in the quarterly earnings announcement setting. Post-announcement-drift is documented only for earnings announcements that have high information uncertainty, measured by high abnormal trading volume and return volatility surrounding the announcement. The results are robust after controlling for the magnitude of earni...

In a competitive information market, a single information source can only dominate other sources individually, not collectively. We explore whether earnings announcements constitute such a dominant source using Ball and Shivakumar’s (2008) R metric: the proportion of the variation in annual returns explained by the four quarterly earnings announcement returns. We find that the earnings announce...

We show the cost of trading on negative news relative to positive news increases prior to earnings announcements. Our evidence suggests this asymmetry is due to financial intermediaries’ preference to reduce their exposure to risks associated with the announcements. The asymmetry creates a predictable upward bias in prices that increases pre-announcement and subsequently reverses, which confoun...

This study provides new insight into the market’s allocation of dividend-related and capital gains-based returns on common stock around earnings announcement surprises. To the extent that investors’ cash flow forecasts are revised as earnings surprises occur, Americus Trust prime and score returns reflect changes in respective future dividends and capital gains. About 70% of the value gain from...

Using data on cohabitation from the 1995-1997 March Current Population Survey, the first three years in which the survey included "unmarried partner" as a relationship category, I measure the relationship between earnings and cohabitation as well as other marital statuses across racial-ethnic groups for men and women. Results show that among 25-54 year-old workers, black women have the largest ...

We show that proxies for firms’ incentives to manage earnings expectations toward beatable levels contain strong predictive power for earnings announcement returns. Firms with stronger incentives to manage expectations predictably underperform before, and subsequently outperform during, their expected earnings announcement months. This predictable V-shaped pattern in prices yields strategy retu...

The realized size and value premia reflect earnings-induced price surprises that do not fit the rational pricing story. In addition, they seem to have little to do with systematic risks. This is because the majority of value or small firms with persistently high systematic risks are not rewarded with a premium. The premium happens, as a price adjustment, only to the subset of migrating firms wh...

We reexamine the existence of earnings announcement-day premia and find that they persist beyond the sample period of earlier studies, over different disclosure environments and remain robust to the refinement of using the expected announcement day rather than the actual announcement day. We provide evidence that the premia are reduced in the presence of earnings pre-announcements. We document ...