Asymmetry, earnings announcements, and the beta-return relation

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

Finance Research Letters, 2024, vol. 67, issue PB

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.

Keywords: Earnings announcements; Security market line; Beta-return relationship; Speculation (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pb:s1544612324009723

DOI: 10.1016/j.frl.2024.105942

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