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The Earnings Announcement Premium Around the Globe

Last Updated on 10 February, 2024 by Rejaul Karim

In the expansive realm of global financial markets, the paper “The Earnings Announcement Premium Around the Globe” unfolds a comprehensive investigation authored by Brad M. Barber, Emmanuel T. De George, Reuven Lehavy, and Brett Trueman.

Extending over 49 pages and posted in 2012, this research unravels a phenomenon observed in U.S. stocks—the earnings announcement premium—and systematically explores its existence on a global scale. Examining data from 46 countries, the authors reveal that, on average, stock returns during earnings announcement months surpass those in non-announcement months by more than 11 percent annually, even after accounting for established factors linked to stock returns.

This international perspective provides a nuanced understanding of the earnings announcement premium, demonstrating its persistence across diverse years and countries. The study delves into the dynamics of idiosyncratic volatility, suggesting that heightened uncertainty surrounding earnings disclosures is a key driver of this global phenomenon.

Abstract Of Paper

U.S. stocks have been shown to earn higher returns during earnings announcement months than during non-announcement months. We document that this earnings announcement premium exists across the globe. Using data from 46 countries, we find that the average stock return during earnings announcement months exceeds the return during non-announcement months by over 11 percent annually, after controlling for factors known to be associated with stock returns. The positive incremental return during earnings announcement months is not isolated to a few years; it is significant for 16 of the 20 years of our sample period. Moreover, it is not isolated to a few countries. Of the 20 countries with enough data to conduct a within-country analysis, nine exhibit a significantly positive premium. A cross-country analysis finds that the premium is strongest in countries with the greatest increase in idiosyncratic volatility around the time of their firms’ earnings announcements, suggesting that uncertainty over the earnings information to be disclosed is a primary driver of the global announcement premium.

Original paper – Download PDF

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Author

Brad M. Barber
University of California, Davis

Emmanuel T. De George
University of Miami

Reuven Lehavy
University of Michigan, Stephen M. Ross School of Business

Brett Trueman
University of California, Los Angeles (UCLA) – Anderson School of Management

Conclusion

In summary, the study illuminates a global phenomenon—the earnings announcement premium—that transcends U.S. markets. Analyzing data from 46 countries, the research unveils an average annual stock return during earnings announcement months surpassing non-announcement months by over 11 percent, even after accounting for established factors impacting stock returns.

Notably, this positive incremental return is sustained over a significant portion of the sample period, robustly persisting across diverse countries. The cross-country analysis underscores the premium’s association with heightened idiosyncratic volatility during firms’ earnings announcements.

This insight emphasizes the role of uncertainty surrounding earnings information as a primary catalyst for the observed global announcement premium. The findings contribute valuable insights into the cross-cultural dynamics of market behavior during earnings seasons.

Related Reading:

The January Seasonality and the Performance of Country-Level Value and Momentum Strategies

Momentum, Contrarian, and the January Seasonality

FAQ

Q1: What is the main focus of the paper “The Earnings Announcement Premium Around the Globe,” and what does it reveal about the earnings announcement premium?

The paper explores the phenomenon of the earnings announcement premium, initially observed in U.S. stocks, on a global scale. The research reveals that, on average, stock returns during earnings announcement months exceed those in non-announcement months by more than 11 percent annually across 46 countries. The study investigates the persistence of this premium, considering various factors associated with stock returns and highlighting its global existence.

Q2: How does the study demonstrate the global existence of the earnings announcement premium, and is it consistent across different countries and years?

The research provides evidence of the global existence of the earnings announcement premium by analyzing data from 46 countries. The study reveals that the positive incremental return during earnings announcement months is not confined to specific years or countries. Over the 20-year sample period, it is significant for 16 years, and of the 20 countries analyzed, nine exhibit a significantly positive premium. This consistency across diverse countries and years underscores the robustness of the earnings announcement premium.

Q3: What insight does the cross-country analysis provide regarding the earnings announcement premium, and what is suggested about the primary driver of this global phenomenon?

The cross-country analysis indicates that the earnings announcement premium is strongest in countries experiencing a substantial increase in idiosyncratic volatility during firms’ earnings announcements. This suggests that uncertainty surrounding the disclosed earnings information is a primary driver of the global announcement premium. The findings emphasize the role of heightened uncertainty in shaping the observed global phenomenon and contribute to a deeper understanding of market behavior during earnings seasons worldwide.

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