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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27555
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| Title: | Earnings Announcement Premia and the Limits to Arbitrage |
| Authors: | Cohen, Daniel A.
Dey, Aiyesha
Lys, Thomas Z.
Sunder, Shyam V. |
| Issue Date: | 27-Dec-2004 |
| Series/Report no.: | Daniel A. Cohen-10 |
| Abstract: | We document that earnings announcement-day premia persist beyond the
sample period of earlier studies, over different disclosure environments
and remain robust to the refinement of using the expected announcement
day rather than the actual announcement day. A portfolio of announcing
firms yields returns in excess of the corresponding risk. Excluding
announcers from a well-diversified portfolio, while reducing the
standard deviation of that portfolio, also reduces its Sharpe ratio,
indicating that this strategy results in a less favorable risk-return
trade-off. Finally, we provide evidence that the premia are dramatically
reduced when the announcement risk is reduced through preannouncements.
In addition, we document that the continued presence of this premia is
likely to result from limits to arbitrage. These findings are consistent
with the view that the announcement period returns are likely to
represent compensation for announcement risk. |
| URI: | http://hdl.handle.net/2451/27555 |
| Appears in Collections: | Accounting Working Papers
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