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Academic audit

Failedequity event

Earnings Announcement Premium

The three-gate gauntlet · genuine only if it clears all three and survives adversarial refutation
Gate 1
Survivorship-free
free
clean panel
Gate 2
Placebo ≥ P95
P100
outranked ~200 of 200 baskets
Eliminated here
Gate 3
Cost-aware net
RF -0.65
net-negative after costs
Failed
Worst 12-month leg (RF)-0.99
−1.00 floor0
Every strategy here — winners included — loses in its worst 12 months. Depth is honest context, not the verdict.
Rejected at the cost gate — the net edge turns negative once modelled costs are applied.

The earnings-announcement premium is the tendency for stocks to earn higher returns in the days around their scheduled earnings announcements. This study buys into the announcement window and holds a long/short book across the panel.

What we found

The signal has genuine rank-skill: it ranks stocks better than chance even against a survivorship-free placebo. But that skill does not survive the cost of trading it. The long/short book turns over heavily around each announcement, and after realistic modelled costs the net result is negative (risk-adjusted RF -0.65, worst-year RF -0.99). In short, the effect is real but cost-fatal on the turnover it requires, so it did not pass as a usable factor-leg.

How we tested it
2005–2026 test windowmodelled liquidity-aware costssurvivorship free
  • Survivorship-free 1077-name US common-stock panel, 2005-2026. Realistic modelled costs.
  • Placebo / robustness test: real result vs random baskets or shuffled signals (real vs the 95th percentile of random)
Source: Beaver (1968) / Frazzini & Lamont (2007) earnings-announcement premium
Read the paper ↗
← The Academic Audit — all 54 studies

Research, not investment advice. “Validated” factor-legs are market-neutral diversifying building blocks with a losing worst year — none is a standalone tradeable strategy. Metrics are cost-aware and modelled (not live fills); the 2005–2026 test window is out-of-sample versus the source paper. Dollar figures are not returns and are omitted by design.