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The short-duration premium and news announcements

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  • Beckmeyer, Heiner
  • Meyerhof, Paul

Abstract

We study the dynamics of the short-duration premium around pre-scheduled news announcements. For macroeconomic news, long-duration stocks earn higher returns than short-duration stocks. On the flip side, returns for short-duration stocks are significantly elevated on earnings announcement days. Focusing on earnings announcement as a laboratory for the pricing of firm-specific news, we differentiate between four competing explanations. We find strong support for the idea that investors are overly optimistic about long-term cash-flows, leading to an overvaluation of long-duration stocks. This overvaluation is in part corrected at earnings announcements, explaining the lower return response of long- compared to short-duration stocks. We also present empirical evidence against the three competing explanations, and show that the effect is not present in the corporate bond market.

Suggested Citation

  • Beckmeyer, Heiner & Meyerhof, Paul, 2025. "The short-duration premium and news announcements," Journal of Banking & Finance, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:jbfina:v:176:y:2025:i:c:s0378426625000652
    DOI: 10.1016/j.jbankfin.2025.107445
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General

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