The announcement waiting game : holding costs, trading, and returns around earnings announcements

Firms and asset pricing anomalies earn large returns around earnings announcements. This paper advances an explanation for this phenomenon based on holding costs, which are costs incurred by investors while maintaining an existing position. Since holding costs raise the marginal cost of holding a position, I hypothesize holding costs cause sophisticated investors to concentrate their positions in stocks and anomalies around earnings announcements, which subsequently induces concentration in price discovery around these announcements. This paper proposes empirical tests to identify (i) how holding costs influence the trading behavior of sophisticated investors and (ii) whether holding costs contribute to the concentration in returns around earnings releases through their effects on trading behavior. In sum, this paper hopes to highlight the importance of considering the objective function and constraints of the investors performing price discovery when studying the relationship between information releases and market outcomes.

Department dc:contributor.department

Sloan School of Management

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2021

Author dc:creator

• De Silva, Tim(Timothy Harindra)

Advisor dc:contributor.advisor

• Eric So.

• Sloan School of Management.

Statement dc:rights

• MIT theses may be protected by copyright. Please reuse MIT thesis content according to the MIT Libraries Permissions Policy, which is available through the URL provided.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

https://hdl.handle.net/1721.1/130733

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/130733