Haoyuan Li, Roger K. Loh
Working paper. Linked version: June 28, 2021.
Haoyuan Li, Roger K. Loh. The Information Cycle and Return Seasonality. Working paper. Linked version: June 28, 2021.
IN ONE SENTENCE:
The paper proposes an information-cycle explanation for the tendency of stock returns to repeat themselves in the same calendar month.
Abstract:
Heston and Sadka (2008) document the return seasonality anomaly—that cross-sectional stock returns depend on their historical same calendar-month returns. We propose an information-cycle explanation for this anomaly, that firms’ seasonal information releases lead to higher returns in months with such information releases, and lower returns in months with no scheduled information releases. Using past earnings announcements and decreases in implied volatility as proxies for scheduled information events, we find indeed that event-month seasonal winners and nonevent-month seasonal losers indeed drive the seasonality anomaly. Hence, return seasonality can in fact be consistent with investors’ rational response to information uncertainty.
Other Links/Materials:
Keywords:
Return seasonality · Information cycle · Information uncertainty · Earnings announcements · Calendar effects · Seasonal stock returns · Information releases · Implied volatility · Return predictability