A profit is announced

Research from Emmanuel De George shows how checking the calendar for earnings announcements might be the best investment you ever make.


Stock investors are always on the lookout for the smallest advantage that will give them a return on their investment. Strategies vary from analysing reams of corporate financial data to poring over stock charts looking for support and resistance levels. Now investors may have to add another tactic to their toolkit, given the results of recent research by London Business School Assistant Professor of Accounting Emmanuel De George, together with US business school academics Brad Barber, Reuven Lehavy and Brett Trueman.

In their paper ‘The earnings announcement premium around the globe’, the authors build on previous studies of US stocks that reveal an interesting quirk of stock performance. There is a higher return for stocks during the month when their earnings announcements are made than in the months when no announcement is forthcoming.

The authors set out to investigate whether this announcement effect existed worldwide or was restricted to the US. They also sought to discover its cause. Data was collected for the 20-year period from 1990 through to 2009. After accounting for various factors, this equated to a final sample of 200,711 annual earnings announcements, issued by 28,772 firms from 46 countries.

To assess the investment returns, the study used two portfolios constructed at the end of the month preceding the announcement month; an ‘announcer portfolio’ of those firms expected to announce annual earnings, and a ‘non-announcer portfolio’ of those firms not expected to announce. The researchers calculated the average monthly raw return when using a strategy of buying (or going long), in the announcer portfolio, while selling, (or shorting), the non-announcer portfolio.

The earnings announcement premium effect held true using the 46-country data set. It resulted in an average return of 123.7 basis points for the announcer portfolio, and 63.9 basis points for the non-announcer portfolio. This produced an average positive monthly long-short return (the difference between the two) of 59.7 basis points, or 7.16 per cent on an annual basis.

There were some interesting incidental findings too. Notably that the premium was only seen for the expected announcement month and two surrounding months, its effect was greater for smaller firms, and the same effect wasn’t seen for interim earnings announcements.

A number of possible causes have been suggested for the earnings announcement premium. One is that investors tend to buy stocks that grab their attention – the attention hypothesis. As firms announcing annual earnings are more likely to be featured in the media, more investors will buy their shares, temporarily driving up the price. Another possible explanation is that the additional return is due to surprisingly favourable earnings news. However, the study found no evidence for either of these being responsible for the effect.

Instead the researchers attributed the higher returns during the earnings announcement month to uncertainty over the nature of the information coming out in the release. That is the investor’s anticipation of greater volatility relating to the circumstances of the individual stock following the earnings announcement – idiosyncratic volatility as opposed to systemic volatility – led to them demand a higher expected return.

Ultimately, though, the main lesson for investors appears to be, when sorting out all the financial reporting data and technical analysis charts, in order to hone your investment strategy, don’t forget to check the earnings calendar. Getting a reasonable return on your investments might just be that simple.


E. De George, B. Barber, R. Lehavy and B. Trueman, ‘The Earnings Announcement Premium around the Globe’, Journal of Financial Economics, vol. 108, pp. 118-138 (2013)

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