Asymmetry, earnings announcements, and the beta-return relation

Deok Hyeon Lee; Byoung Kyu Min; Robert Faff; Young Mee Kim

doi:10.1016/j.frl.2024.105942

Asymmetry, earnings announcements, and the beta-return relation

Deok Hyeon Lee, Byoung Kyu Min^*, Robert Faff, Young Mee Kim

^*Corresponding author for this work

Research output: Contribution to journal › Article › Research › peer-review

Abstract

We find that the beta–return relationship is asymmetric around earnings announcements. The security market line has a positive slope in the days leading up to earnings announcements, but a negative slope in the days that follow. This striking shift in the risk–return trade-off is driven primarily by high-beta stocks. Moreover, a modified conditional market-timing beta strategy, incorporating the timing of earnings announcements, enhances profitability. Overall, the results lend empirical support to the theoretical predictions of Hong and Sraer (2016), which posit that beta amplifies disagreements regarding the stock market's prospects.

Original language	English
Article number	105942
Pages (from-to)	1-7
Number of pages	7
Journal	Finance Research Letters
Volume	67
Issue number	Part B
DOIs	https://doi.org/10.1016/j.frl.2024.105942
Publication status	Published - Sept 2024
Externally published	Yes

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10.1016/j.frl.2024.105942

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title = "Asymmetry, earnings announcements, and the beta-return relation",

abstract = "We find that the beta–return relationship is asymmetric around earnings announcements. The security market line has a positive slope in the days leading up to earnings announcements, but a negative slope in the days that follow. This striking shift in the risk–return trade-off is driven primarily by high-beta stocks. Moreover, a modified conditional market-timing beta strategy, incorporating the timing of earnings announcements, enhances profitability. Overall, the results lend empirical support to the theoretical predictions of Hong and Sraer (2016), which posit that beta amplifies disagreements regarding the stock market's prospects.",

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AU - Min, Byoung Kyu

AU - Faff, Robert

AU - Kim, Young Mee

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N2 - We find that the beta–return relationship is asymmetric around earnings announcements. The security market line has a positive slope in the days leading up to earnings announcements, but a negative slope in the days that follow. This striking shift in the risk–return trade-off is driven primarily by high-beta stocks. Moreover, a modified conditional market-timing beta strategy, incorporating the timing of earnings announcements, enhances profitability. Overall, the results lend empirical support to the theoretical predictions of Hong and Sraer (2016), which posit that beta amplifies disagreements regarding the stock market's prospects.

AB - We find that the beta–return relationship is asymmetric around earnings announcements. The security market line has a positive slope in the days leading up to earnings announcements, but a negative slope in the days that follow. This striking shift in the risk–return trade-off is driven primarily by high-beta stocks. Moreover, a modified conditional market-timing beta strategy, incorporating the timing of earnings announcements, enhances profitability. Overall, the results lend empirical support to the theoretical predictions of Hong and Sraer (2016), which posit that beta amplifies disagreements regarding the stock market's prospects.

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JO - Finance Research Letters

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Asymmetry, earnings announcements, and the beta-return relation

Abstract

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