The Earnings Announcement Return Cycle

Information Consumption and Asset Pricing

“…We note that it is often impossible to distinguish between rational and behavioral explanations for the return premia that we identify (Kozak, Nagel, and Santosh (2018)). Other alternative explanations may include limited investor attention (e.g., Frazzini and Lamont (2007), Hirshleifer, Lim, and Teoh (2009)), rational inattention and biases in investor expectations (e.g., Linnainmaa and Zhang (2019)). Nevertheless, our findings provide compelling evidence that a risk premium is earned when investors process public announcements and update their beliefs about affected firms and the general economy.…”