scholarly journals Factor momentum, option-implied volatility scaling, and investor sentiment

2021 ◽  
Author(s):  
Klaus Grobys ◽  
James W. Kolari ◽  
Jere Rutanen
Keyword(s):  
Stock Price ◽  
Implied Volatility ◽  
Statistical Significance ◽  
Investor Sentiment ◽  
Earnings Announcement ◽  
Price Momentum ◽  
Post Earnings Announcement Drift

AbstractFactor momentum produces robust average returns that exhibit a similar economic magnitude as stock price momentum. To the extent that the post-earnings announcement drift (PEAD) factor captures mispricing, winner factors earn profits from being long on underpriced stocks and short on overpriced stocks. Conversely, loser-factors’ negative exposure to the PEAD factor suggests that loser factors capture mispricing by being long on overpriced stocks and short on underpriced stocks. Option-implied volatility scaling increases both the economic magnitude and statistical significance of factor momentum. Factor momentum is not exposed to the same crashes as stock price momentum and therefore could provide a hedge for stock price momentum crash risks. Also, factor momentum mispricing is more pronounced when investor sentiment is high.

scholarly journals The Market Sentiment Trend, Investor Inertia, and Post-Earnings Announcement Drift: Evidence from Korea’s Stock Market

2019 ◽  
Vol 11 (18) ◽  
pp. 5137 ◽  
Author(s):  
Shin ◽  
Shin ◽  
Kim
Keyword(s):  
Stock Market ◽  
Stock Price ◽  
Specific Point ◽  
Market Anomalies ◽  
Earnings Announcement ◽  
Market Sentiment ◽  
Earnings Information ◽  
Post Earnings Announcement Drift ◽  
Negative Drift ◽  
Directional Trend

We investigated whether post-earnings announcement drift (PEAD) in the Korean stock market is related to investor inertial behavior under a directional trend in market sentiment. Given that investors tend to procrastinate due to their belief in the persistence of the current market’s condition and thus underreact to earnings information, we examined whether this investor inertia influences the drift in stock price following an earnings announcement. Our findings show that when the market sentiment continues to shift upwardly (downwardly) over the pre- and post-earnings announcement period, positive (negative) drift occurs. Note that these results are robust to control for the effect of market sentiment at a specific point in time. We suggest that investors do not fully respond to new earnings information due to investor inertial behavior under the market sentiment with a consistent trend. Overall, our study sheds light on a determinant of PEAD as one of the market anomalies in terms of investors’ cognitive bias by documenting the relation between PEAD and investor inertia.

The post-repurchase announcement drift: an anomaly in disguise?

2015 ◽  
Vol 41 (2) ◽  
pp. 205-224 ◽  
Author(s):  
Thanh T. Nguyen ◽  
Ninon K. Sutton ◽  
Dung (June) Pham
Keyword(s):  
Stock Price ◽  
Abnormal Returns ◽  
Open Market ◽  
Calendar Time ◽  
Stock Repurchase ◽  
Earnings Announcement ◽  
Content Type ◽  
Post Earnings Announcement Drift ◽  
Earnings Performance ◽  
Repurchase Announcements

Purpose – The purpose of this paper is to reexamine the stock price drifts after open-market stock repurchase announcements by differentiating actual repurchases from repurchase announcements and by controlling for the repurchasing firms’ earnings improvement in the announcement year relative to the prior year. Design/methodology/approach – The authors use the calendar-time method and matching method based on different criteria to calculate the post-announcement abnormal returns. Findings – The results show that only firms actually repurchasing their shares exhibit a positive post-announcement drift. More importantly, the authors find that these repurchasing firms have the same post-announcement drift as their matching firms that have similar size and earnings performance but do not repurchase. This supports the argument that the post-repurchase announcement drift found in previous studies is not a distinct anomaly but the post-earnings announcement drift in disguise. Social implications – The post-repurchase announcement drift found in previous studies is the post-earnings announcement drift in disguise. Originality/value – The study shows that because high earnings performance positively relates to real repurchase activities, controlling for earnings performance in examining whether a drift occurs after repurchase announcements.

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