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August 19, 2025Open Access

Lottery Demand and Stock Returns Preceding Earnings Announcements

Key Points

Stock returns increase by 85 basis points before earnings announcements, indicating strong investor preference.
The key finding highlights a significant link between past gains during earnings announcements and future performance.
This analysis of stock behavior utilized risk-adjusted return differences over a ten-day time frame.
The results suggest that investors favor stocks with potential for large payoffs during earnings events.

Abstract

ABSTRACT We document a significant positive relation between extreme positive stock returns around past earnings announcements and stock returns in the 10‐day window before current earnings announcements. The average of risk‐adjusted return differences between stocks with the highest earnings announcement maximum returns and stocks with the lowest earnings announcement maximum returns is 85 basis points in the 10 days leading up to earnings announcements. This is consistent with the argument that investors have a preference for stocks with large payoffs during earnings announcements.

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Discussion

Journals

Journal of Business Finance &amp Accounting

Institutions

Monash University

Massey University

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