Uncertainty Resolution Before Earnings Announcements

53 Pages Posted: 2 Jun 2020 Last revised: 27 Feb 2021

See all articles by Chao Gao

Chao Gao

Australian National University, RSFAS

Grace Xing Hu

PBC School of Finance, Tsinghua University

Xiaoyan Zhang

Tsinghua University - PBC School of Finance

Date Written: May 6, 2020

Abstract

We document that 72% of the earnings announcement premium is realized before, rather than after, earnings releases. It is possible that the large pre-announcement returns are compensations for uncertainty resolution before announcement. To test the uncertainty resolution hypothesis, we examine the pattern of pre-announcement returns in the cross section of stocks. There are compelling empirical evidence in support of the hypothesis: the pre-announcement returns are significantly higher for firms with high uncertainty, and when the aggregate market uncertainty is high. Finally, we present two distinct channels for uncertainty resolution: information acquisition by investors and information supply by analysts.

Keywords: Pre-Announcement Return, Earnings Announcements, Uncertainty Resolution

JEL Classification: G12, G14

Suggested Citation

Gao, Chao and Hu, Grace Xing and Zhang, Xiaoyan, Uncertainty Resolution Before Earnings Announcements (May 6, 2020). PBCSF-NIFR Research Paper, Available at SSRN: https://ssrn.com/abstract=3595953 or http://dx.doi.org/10.2139/ssrn.3595953

Chao Gao (Contact Author)

Australian National University, RSFAS ( email )

CBE Building
26C Kingsley Street
Acton, 2601
Australia

Grace Xing Hu

PBC School of Finance, Tsinghua University ( email )

43 Chengfu Road
Haidian District
Beijing, Beijing 100083
China

Xiaoyan Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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

Paper statistics

Downloads
541
Abstract Views
2,051
rank
63,078
PlumX Metrics