Anomalies and News

Joseph Engelberg, R. David McLean and Jeffrey Pontiff

Journal of Finance, 2018, vol. 73, issue 5, 1971-2001

Abstract: Using a sample of 97 stock return anomalies, we find that anomaly returns are 50% higher on corporate news days and six times higher on earnings announcement days. These results could be explained by dynamic risk, mispricing due to biased expectations, or data mining. We develop and conduct several unique tests to differentiate between these three explanations. Our results are most consistent with the idea that anomaly returns are driven by biased expectations, which are at least partly corrected upon news arrival.

Date: 2018
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