Anomalies and News

Posted: 17 Jul 2015 | Last revised: 23 Nov 2017

Joseph Engelberg
University of California, San Diego (UCSD) – Rady School of Management

R. David McLean
Georgetown University – Department of Finance

Jeffrey Pontiff
Boston College – Department of Finance

Abstract

Using a sample of 97 stock return anomalies, we find that anomaly returns are 50% higher on corporate news days and are 6 times higher on earnings announcement days. These results could be explained by dynamic risk, mispricing via biased expectations, and data mining. We develop and conduct unique tests to differentiate between these three frameworks. Our results are most consistent with the idea that anomaly returns are the result of biased expectations, which are at least partially corrected upon news arrival.

 

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