The short-duration premium and news announcements

Heiner Beckmeyer and Paul Meyerhof

Journal of Banking & Finance, 2025, vol. 176, issue C

Abstract: We study the dynamics of the short-duration premium around pre-scheduled news announcements. For macroeconomic news, long-duration stocks earn higher returns than short-duration stocks. On the flip side, returns for short-duration stocks are significantly elevated on earnings announcement days. Focusing on earnings announcement as a laboratory for the pricing of firm-specific news, we differentiate between four competing explanations. We find strong support for the idea that investors are overly optimistic about long-term cash-flows, leading to an overvaluation of long-duration stocks. This overvaluation is in part corrected at earnings announcements, explaining the lower return response of long- compared to short-duration stocks. We also present empirical evidence against the three competing explanations, and show that the effect is not present in the corporate bond market.

Keywords: Equity term structure; Cash-flow duration; Mispricing; News announcements; Analyst forecasts; Limits to arbitrage (search for similar items in EconPapers)
JEL-codes: G12 G14 G40 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:176:y:2025:i:c:s0378426625000652

DOI: 10.1016/j.jbankfin.2025.107445

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