Title: The earnings-announcement-day news puzzle
Authors: Nicolas Moreno - HEC Liege - University of Liege (Belgium) [presenting]
Marie Lambert - HEC Liege (Belgium)
Abstract: Glamour stocks are particularly responsive to new information falling on earnings announcements (EA). Using a sentiment measure to proxy for firm-specific news content, we show that glamour stocks are almost twice as sensitive to EA-news releases than value stocks. The EA-news effect is not reversed over the quarter following the announcement, suggesting a permanent impact generated by informed traders. Conversely, value stocks are more affected by subsequent news shocks post-EA. If investors realize on EA that value-stock news convey a disappointing amount of information, in the sense that implications for future earnings and returns are less obvious than for glamour stocks, then they will command a premium for bearing greater post-EA idiosyncratic risk. Consistent with this prediction, we find that low reaction to EA-news is priced: Stocks with the lowest sensitivity to EA-news earn a significant 17.99\% annualized return premium and exhibit greater idiosyncratic risk levels post-EA.