When are extreme daily returns not lottery? At earnings announcements!

Hung T. Nguyen, Cameron Truong

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Using a sample of U.S. stocks over the period 1973–2015, we find that quarterly earnings announcements account for more than 18% of the total maximum daily returns in the top MAX portfolio. Maximum daily returns as triggered by earnings announcements do not entail lower future returns. Both portfolio and regression analyses show that the MAX phenomenon completely disappears when conditioning MAX returns on earnings announcements. We further show that earnings announcement MAX returns do not indicate a probability of future large short-term upward returns. Excluding earnings announcement MAX returns in constructing the lottery demand factor results in not only a larger lottery demand premium but also superior factor model performance.

Original languageEnglish
Pages (from-to)92-116
Number of pages25
JournalJournal of Financial Markets
Volume92
Issue number116
DOIs
Publication statusPublished - Nov 2018

Keywords

  • Cross-sectional return predictability
  • Earnings announcements
  • Extreme returns
  • Lottery-like payoffs

Cite this

@article{47f1788eac17492da226875df29885f8,
title = "When are extreme daily returns not lottery? At earnings announcements!",
abstract = "Using a sample of U.S. stocks over the period 1973–2015, we find that quarterly earnings announcements account for more than 18{\%} of the total maximum daily returns in the top MAX portfolio. Maximum daily returns as triggered by earnings announcements do not entail lower future returns. Both portfolio and regression analyses show that the MAX phenomenon completely disappears when conditioning MAX returns on earnings announcements. We further show that earnings announcement MAX returns do not indicate a probability of future large short-term upward returns. Excluding earnings announcement MAX returns in constructing the lottery demand factor results in not only a larger lottery demand premium but also superior factor model performance.",
keywords = "Cross-sectional return predictability, Earnings announcements, Extreme returns, Lottery-like payoffs",
author = "Nguyen, {Hung T.} and Cameron Truong",
year = "2018",
month = "11",
doi = "10.1016/j.finmar.2018.05.001",
language = "English",
volume = "92",
pages = "92--116",
journal = "Journal of Financial Markets",
issn = "1386-4181",
publisher = "Elsevier",
number = "116",

}

When are extreme daily returns not lottery? At earnings announcements! / Nguyen, Hung T.; Truong, Cameron.

In: Journal of Financial Markets, Vol. 92, No. 116, 11.2018, p. 92-116.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - When are extreme daily returns not lottery? At earnings announcements!

AU - Nguyen, Hung T.

AU - Truong, Cameron

PY - 2018/11

Y1 - 2018/11

N2 - Using a sample of U.S. stocks over the period 1973–2015, we find that quarterly earnings announcements account for more than 18% of the total maximum daily returns in the top MAX portfolio. Maximum daily returns as triggered by earnings announcements do not entail lower future returns. Both portfolio and regression analyses show that the MAX phenomenon completely disappears when conditioning MAX returns on earnings announcements. We further show that earnings announcement MAX returns do not indicate a probability of future large short-term upward returns. Excluding earnings announcement MAX returns in constructing the lottery demand factor results in not only a larger lottery demand premium but also superior factor model performance.

AB - Using a sample of U.S. stocks over the period 1973–2015, we find that quarterly earnings announcements account for more than 18% of the total maximum daily returns in the top MAX portfolio. Maximum daily returns as triggered by earnings announcements do not entail lower future returns. Both portfolio and regression analyses show that the MAX phenomenon completely disappears when conditioning MAX returns on earnings announcements. We further show that earnings announcement MAX returns do not indicate a probability of future large short-term upward returns. Excluding earnings announcement MAX returns in constructing the lottery demand factor results in not only a larger lottery demand premium but also superior factor model performance.

KW - Cross-sectional return predictability

KW - Earnings announcements

KW - Extreme returns

KW - Lottery-like payoffs

UR - http://www.scopus.com/inward/record.url?scp=85047800936&partnerID=8YFLogxK

U2 - 10.1016/j.finmar.2018.05.001

DO - 10.1016/j.finmar.2018.05.001

M3 - Article

VL - 92

SP - 92

EP - 116

JO - Journal of Financial Markets

JF - Journal of Financial Markets

SN - 1386-4181

IS - 116

ER -