We propose that extrapolative beliefs about earnings announcement (EA) returns may contribute to the understanding of EA return patterns. We construct a theoretically motivated measure of extrapolative investors’ expectations based on a stock’s recent history of EA returns. We then show that this measure explains cross-sectional variation in stock returns and investor behavior around EAs. Stocks expected to have high EA returns, according to our measure, experience predictable increases in prices before EAs and predictable decreases afterward. These patterns are economically significant: investors that buy (sell) a portfolio that is long firms with high recent EA returns and short firms with low recent EA returns in the pre-EA (post-EA) period earn daily five-factor abnormal returns of 16.1 bps (18.3 bps). Using individual investor trades data and a measure of institutional trading, we find that individual and institutional investors are more likely to purchase stocks with high recent EA returns, consistent with at least a subset of investors forming extrapolative beliefs about EA returns.

我们建议，关于收益公告（EA）收益的推断信念可能有助于理解EA收益模式。我们根据股票最近的EA回报历史记录，构建了一种理论上可行的推论性投资者期望值度量。然后，我们证明该度量方法可以解释EA周围股票收益率和投资者行为的横截面变化。根据我们的衡量，预期具有较高EA回报的股票在EA之前的价格会有可预见的上涨，而在EA之后则是可预测的。这些模式在经济上具有重要意义：在EA之前（后EA）期间，购买（出售）具有较高EA近期收益的多头公司和具有较低EA收益的短期公司的投资组合，每天可获得5因子的异常收益。 16.1 bps（18.3 bps）。