Earnings Announcement Idiosyncratic Volatility and the Cross-Section of Stock Returns

50 Pages Posted: 22 Dec 2015

See all articles by Cameron Truong

Cameron Truong

Monash University; Financial Research Network (FIRN)

Multiple version iconThere are 3 versions of this paper

Date Written: December 22, 2015

Abstract

We document a significant positive relation between earnings announcement idiosyncratic volatility and stock returns in the 10-day window before future earnings announcements. The average of risk-adjusted return differences between stocks with the highest earnings announcement idiosyncratic volatility and stocks with the lowest earnings announcement idiosyncratic volatility exceeds 100 basis points in the 10 days leading up to the earnings announcements. The pricing of earnings announcement idiosyncratic volatility is asymmetric where only idiosyncratic volatility based on positive stock returns is priced. This is consistent with the argument that investors have a preference for stocks with large payoffs during earnings announcements.

Keywords: Stock returns; idiosyncratic volatility; earnings announcements

JEL Classification: G10; G11; G12; G14

Suggested Citation

Truong, Cameron, Earnings Announcement Idiosyncratic Volatility and the Cross-Section of Stock Returns (December 22, 2015). 2016 Financial Markets and Corporate Governance, Available at SSRN: https://ssrn.com/abstract=2706975 or http://dx.doi.org/10.2139/ssrn.2706975

Cameron Truong (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
43
Abstract Views
487
PlumX Metrics