|Author:||Kong, Kwok Wai|
|Title:||Announcement premium : a price-correction-based explanation|
|Subject:||Hong Kong Polytechnic University -- Dissertations|
Stocks -- Prices
|Department:||Faculty of Business|
|Pages:||iii, 100 pages : illustrations ; 30 cm|
|Abstract:||Corporate earnings announcements convey important information about the financial health of firms and elicit attention of traders.Current literature reports that stocks on average exhibit positive abnormal returns over short windows around announcement days. This phenomenon is commonly referred to as "announcement premium" and has been studied in numerous frameworks including systemic risk, idiosyncratic risk, market liquidity, attention hypothesis, accounting quality, company characteristics and arbitrage dynamics. However, notwithstanding these extensive efforts, the exact mechanic behind announcement premium is still unknown.In this study, I contribute to the literature by revealing new dynamics of announcement premium within a price-correction-based framework. Contrasting some popular models that attribute the announcement premia to short-lived market irregularities such as temporary shifts in investors' attention to announcing firms or to buy/sell liquidity imbalances, I document evidence that announcement premium is the product of a well-defined price correcting process. Specifically, I provide empirical evidence to support three distinct phases of price progression: (1) investors reacting to announcement uncertainties, stocks trade below fundamental values over pre-announcement periods,(2) in approaching announcement days, undervalued stocks elicit the attentions of informed traders. Arbitrage trades correct stock mispricing and give rise to the phenomenon of announcement premium, and (3) after earnings announcement days, investors face renewed uncertainty and mispricing builds up again. Consistent with this framework, I show that profiles of announcement premia vary predictably according to factors that influence the levels of stock mispricing, including firm size, the pattern of peers'earning releases, the degrees of analyst following, arbitrage constraints and even investor sentiment. In testing my hypotheses I also produce empirical evidence supporting my arguments that announcement premia are products of price corrections near announcement days, while highlighting the shortfalls of friction-based frameworks, which argue that market irregularities generate upward price biases.|
Files in This Item:
|b28905568.pdf||For All Users (off-campus access for PolyU Staff & Students only)||2.38 MB||Adobe PDF||View/Open|
As a bona fide Library user, I declare that:
- I will abide by the rules and legal ordinances governing copyright regarding the use of the Database.
- I will use the Database for the purpose of my research or private study only and not for circulation or further reproduction or any other purpose.
- I agree to indemnify and hold the University harmless from and against any loss, damage, cost, liability or expenses arising from copyright infringement or unauthorized usage.
By downloading any item(s) listed above, you acknowledge that you have read and understood the copyright undertaking as stated above, and agree to be bound by all of its terms.
Please use this identifier to cite or link to this item: