Journal of Banking & Finance Vol. 176 2025
The short-duration premium and news announcements
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.
- DOI
- 10.1016/j.jbankfin.2025.107445
- Volume
- 176
- Pages
- 107445
- Language
- en
- Sources
- crossref openalex bibtex:phds-export.bib