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The Revision of Systematic Risk on Earnings Announcement in the Presence of Conditional Heteroscedasticity

In: HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING

Author

Listed:
  • Chin-Chen Chien
  • Cheng Few Lee
  • She-Chih Chiu

Abstract

This chapter attempts to explore the puzzle of post-earnings-announcement drifts by focusing on the revision of systematic risk subsequent to the release of earnings information. This chapter proposes a market model with time-varying systematic risk by incorporating ARCH into the CAPM. The Kalman filter is then employed to estimate how the market revises its risk assessment subsequent to earnings announcement. This chapter also conducts empirical analysis based on a sample of US publicly held companies during the five-fiscal year sample period, 2010–2014. After controlling for the revision of risk and isolating potential confounding effect, this chapter finds that the phenomenon of post-earnings announcement drifts, so well documented in accounting literature, no longer exists.

Suggested Citation

  • Chin-Chen Chien & Cheng Few Lee & She-Chih Chiu, 2020. "The Revision of Systematic Risk on Earnings Announcement in the Presence of Conditional Heteroscedasticity," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 53, pages 1969-1990, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811202391_0053
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    More about this item

    Keywords

    Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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