The Revision of Systematic Risk on Earnings Announcement in the Presence of Conditional Heteroscedasticity

Chin-Chen Chien, Cheng Few Lee and She-Chih Chiu

Chapter 53 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 1969-1990 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter attempts to explore the puzzle of post-earnings-announcement drifts by focusing on the revision of systematic risk subsequent to the release of earnings information. This chapter proposes a market model with time-varying systematic risk by incorporating ARCH into the CAPM. The Kalman filter is then employed to estimate how the market revises its risk assessment subsequent to earnings announcement. This chapter also conducts empirical analysis based on a sample of US publicly held companies during the five-fiscal year sample period, 2010–2014. After controlling for the revision of risk and isolating potential confounding effect, this chapter finds that the phenomenon of post-earnings announcement drifts, so well documented in accounting literature, no longer exists.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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