The announcement waiting game : holding costs, trading, and returns around earnings announcements
Author(s)
De Silva, Tim(Timothy Harindra)
Download1251804607-MIT.pdf (1.874Mb)
Other Contributors
Sloan School of Management.
Advisor
Eric So.
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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.
Description
Thesis: S.M. in Management Research, Massachusetts Institute of Technology, Sloan School of Management, February, 2021 Cataloged from the official PDF version of thesis. Includes bibliographical references (pages 55-58).
Date issued
2021Department
Sloan School of ManagementPublisher
Massachusetts Institute of Technology
Keywords
Sloan School of Management.