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Realized moments and the cross-sectional stock returns around earnings announcements

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  • Wang, Qingxia
  • Faff, Robert
  • Zhu, Min

Abstract

We examine the predictability of realized measures on the cross-section of stock returns around earnings announcements. We construct realized measures (variance, skewness, kurtosis, and relative jump) using high-frequency intraday stock prices. Our results show that realized variance, skewness, and relative jumps strongly predict stock returns around earnings announcements but realized kurtosis does not. These findings are robust to various event windows, after controlling for firm characteristics, and to a range of additional tests. We further show that the predictability of realized measures is not affected by unexpected earnings. The findings also suggest that pre-announcement realized measures absorb part of the information contained in unexpected earnings.

Suggested Citation

  • Wang, Qingxia & Faff, Robert & Zhu, Min, 2022. "Realized moments and the cross-sectional stock returns around earnings announcements," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 408-427.
    • Handle: RePEc:eee:reveco:v:79:y:2022:i:c:p:408-427
    DOI: 10.1016/j.iref.2022.02.036
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    More about this item

    Keywords

    Realized measures; Cross-sectional stock returns; Earnings announcements;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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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