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  • January 2017
  • Article
  • Review of Financial Studies

Being Surprised by the Unsurprising: Earnings Seasonality and Stock Returns

By: Tom Y. Chang, Samuel M. Hartzmark, David H. Solomon and Eugene F. Soltes
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Abstract

We present evidence consistent with markets failing to properly price information in seasonal earnings patterns. Firms with historically larger earnings in one quarter of the year (“positive seasonality quarters”) have higher returns when those earnings are usually announced. Analysts have more positive forecast errors in positive seasonality quarters, consistent with the returns being driven by mistaken earnings estimates. We show that investors appear to overweight recent lower earnings following positive seasonality quarters, leading to pessimistic forecasts in the subsequent positive seasonality quarter. The returns are not explained by risk-based explanations, firm-specific information, increased volume, or idiosyncratic volatility.

Keywords

Business Earnings; Investment

Citation

Chang, Tom Y., Samuel M. Hartzmark, David H. Solomon, and Eugene F. Soltes. "Being Surprised by the Unsurprising: Earnings Seasonality and Stock Returns." Review of Financial Studies 30, no. 1 (January 2017): 281–323.
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About The Author

Eugene F. Soltes

Accounting and Management
→More Publications

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  • An Introduction to Money Laundering: 'The Hunter' By: Eugene Soltes, Guilhem Ros and Grace Liu
  • Paper Versus Practice: A Field Investigation of Integrity Hotlines By: Eugene Soltes
  • Background on Insider Trading Liability By: Trevor Fetter, Eugene F. Soltes and Grant Wahlquist
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