Earnings announcement returns tend to be volatile when a significant amount of information remains unknown to investors prior to the announcement. The informativeness of earnings announcements—measured by the return volatility during the announcement period relative to the pre-announcement period—reflects the extent of information not publicly disclosed ex ante. Consistent with the view that information plays a crucial role in stock pricing, we find a positive correlation between the informativeness of earnings announcements and expected stock returns in the U.S. market from 1977 to 2022. This effect is more pronounced among younger firms, firms with higher return volatility, and during periods of heightened investor risk aversion. Additionally, we find supporting evidence that reductions in information supply, driven by Regulation FD, lead to higher expected stock returns.
Cai et al. (Fri,) studied this question.