{"title":"Information intensity and pricing of systematic earnings announcement risk","authors":"Jingjing Chen, Linda H. Chen, George J. Jiang","doi":"10.1111/irfi.12443","DOIUrl":null,"url":null,"abstract":"<p>Earnings announcement (EA) poses a non-diversifiable risk to investors. This study examines whether investors demand higher returns for stocks with high systematic EA risk. We find evidence that systematic EA risk is priced, however, the premium is realized only during periods with intensified cash-flow news. Specifically, we construct an <i>ex-ante</i> measure of expected information intensity (EII) and find that in the subsample of high-EII firms, those with high systematic EA risk earn significantly higher future returns. Controlling for known risk factors, stocks with high systematic EA risk outperform those with low systematic EA risk by 0.43% in monthly Fama–French five-factor alpha. We also confirm the well-documented announcement premium, i.e., high-EII firms outperform low-EII firms and show that the EA risk premium is distinct from the announcement premium. To exploit both premiums, a feasible strategy of long stocks with both high-EII and high systematic EA risk and short stocks with low-EII yields monthly 0.81% five-factor alpha.</p>","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":"24 3","pages":"358-392"},"PeriodicalIF":1.8000,"publicationDate":"2023-12-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Review of Finance","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/irfi.12443","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Earnings announcement (EA) poses a non-diversifiable risk to investors. This study examines whether investors demand higher returns for stocks with high systematic EA risk. We find evidence that systematic EA risk is priced, however, the premium is realized only during periods with intensified cash-flow news. Specifically, we construct an ex-ante measure of expected information intensity (EII) and find that in the subsample of high-EII firms, those with high systematic EA risk earn significantly higher future returns. Controlling for known risk factors, stocks with high systematic EA risk outperform those with low systematic EA risk by 0.43% in monthly Fama–French five-factor alpha. We also confirm the well-documented announcement premium, i.e., high-EII firms outperform low-EII firms and show that the EA risk premium is distinct from the announcement premium. To exploit both premiums, a feasible strategy of long stocks with both high-EII and high systematic EA risk and short stocks with low-EII yields monthly 0.81% five-factor alpha.
收益公告（EA）对投资者构成不可分散的风险。本研究探讨了投资者是否要求系统性 EA 风险高的股票获得更高的回报。我们发现有证据表明，系统性 EA 风险是被定价的，但是，溢价只在现金流新闻密集的时期才会实现。具体而言，我们构建了一个预期信息密集度（EII）的事前衡量指标，并发现在高 EII 公司的子样本中，系统性 EA 风险高的公司未来收益显著更高。在控制已知风险因素的情况下，系统性 EA 风险高的股票在每月法玛-法式五因子阿尔法（Fama-French five-factor alpha）中的表现比系统性 EA 风险低的股票高出 0.43%。我们还证实了有据可查的公告溢价，即高 EII 公司的表现优于低 EII 公司，并表明 EA 风险溢价与公告溢价截然不同。为了利用这两种溢价，一种可行的策略是做多高 EII 和高系统性 EA 风险的股票，做空低 EII 的股票，每月可获得 0.81% 的五因子阿尔法。
期刊介绍：
The International Review of Finance (IRF) publishes high-quality research on all aspects of financial economics, including traditional areas such as asset pricing, corporate finance, market microstructure, financial intermediation and regulation, financial econometrics, financial engineering and risk management, as well as new areas such as markets and institutions of emerging market economies, especially those in the Asia-Pacific region. In addition, the Letters Section in IRF is a premium outlet of letter-length research in all fields of finance. The length of the articles in the Letters Section is limited to a maximum of eight journal pages.
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