The Disappearing Earnings Announcement Premium

60 Pages Posted: 19 Dec 2018 Last revised: 16 May 2022

See all articles by Amanda Heitz

Amanda Heitz

A.B. Freeman School of Business Tulane University

Ganapathi S. Narayanamoorthy

Tulane University - Accounting & Taxation

Morad Zekhnini

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Date Written: November 27, 2020

Abstract

The earnings announcement premium (EAP), whereby a stock earns abnormal returns over its earnings announcement period, has been the subject of extensive academic research. We provide the first evidence that this premium has disappeared from the US markets in recent years. The disappearance likely has a US-specific cause, since the premium appears robust internationally. We theorize and empirically demonstrate that the 2004 Disclosure Regulation, which led to increasingly frequent and more comprehensive filings of material information (Form 8-K), played a role in the disappearance. Mandated 8-K filings appear to eliminate information uncertainty and asymmetry about idiosyncratic firm events, which gave rise to the EAP before 2004. This evidence is therefore consistent with rational uncertainty-based explanations, rather than behavioral limited-attention theories for the erstwhile existence of the EAP.

Keywords: Earnings announcement premium, Disclosure, 8-K filings

JEL Classification: G14, G28

Suggested Citation

Heitz, Amanda and Narayanamoorthy, Ganapathi S. and Zekhnini, Morad, The Disappearing Earnings Announcement Premium (November 27, 2020). Available at SSRN: https://ssrn.com/abstract=3296537 or http://dx.doi.org/10.2139/ssrn.3296537

Amanda Heitz

A.B. Freeman School of Business Tulane University ( email )

6823 Saint Charles Avenue
New Orleans, LA
United States

Ganapathi S. Narayanamoorthy

Tulane University - Accounting & Taxation ( email )

United States

Morad Zekhnini (Contact Author)

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States

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