Style-Driven Earnings Momentum

Müller, Sebastian

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URN: urn:nbn:de:bsz:180-madoc-356022
Document Type: Working paper
Year of publication: 2013
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL u. Finanzwirtschaft, insbes. Bankbetriebslehre (Weber 1993-2017)
Subject: 330 Economics
Abstract: This paper shows that earnings announcements contain information about future returns of “same-style” firms. In the time-series, these information transfers can be used to predict a large number of style-based return spreads (e.g. the profitability of a value minus growth factor). In the cross-section of stocks, a style-based earnings surprise strategy delivers an an equal-weighted (value-weighted) long-short return of 184 (119) basis points per month. The results are neither explained by industry membership, nor by differences in risk, and they are largely unrelated to the performance of a traditional post earnings announcement drift (PEAD) strategy. Further analyses show that investors and analysts underreact to the value-relevant information in earnings announcements of “same-style” firms, suggesting gradual information diffusion as reason for the return predictability.

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