Earnings Announcement Premium and Volume-Based Stock Selection

Summary

The document describes a stock return premium around scheduled earnings announcements and a strategy that uses past trading volume to identify stocks expected to announce. At the start of each month, stocks are ranked by the concentration of their volume around prior earnings announcement periods. Within each ranking group, stocks are divided into expected announcers and non-announcers. A value-weighted long-short portfolio buys high-volume expected announcers and shorts high-volume expected non-announcers, with monthly rebalancing.

Key ideas

• The proposed strategy ranks stocks using the share of recent trading volume that occurred during past announcement months.
• Stocks are separated into expected announcers and non-announcers using the prior year’s announcement pattern.
• The long-short portfolio buys high-volume expected announcers and shorts high-volume expected non-announcers.
• The cited research links stronger premiums with announcement-period volume and inferred buying by individual investors.
• The document reports a long historical record but says the strategy’s crisis correlations and hedging value are unknown.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.