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Asymmetry, earnings announcements, and the beta-return relation

Author

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  • Lee, Deok-Hyeon
  • Min, Byoung-Kyu
  • Faff, Robert
  • Kim, Young-Mee

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.

Suggested Citation

  • Lee, Deok-Hyeon & Min, Byoung-Kyu & Faff, Robert & Kim, Young-Mee, 2024. "Asymmetry, earnings announcements, and the beta-return relation," Finance Research Letters, Elsevier, vol. 67(PB).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pb:s1544612324009723
    DOI: 10.1016/j.frl.2024.105942
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    References listed on IDEAS

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    More about this item

    Keywords

    Earnings announcements; Security market line; Beta-return relationship; Speculation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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