The Structure of Information Release and the Factor Structure of Returns

Abstract

Seventy percent of the reduction in CAPM alphas from including SMB and HML occurs in the main earnings announcement months. Relatedly, quarterly earnings announcements cluster across months along size and book-to-market. We model how such clustering of information release distorts CAPM betas, creating seasonal alphas, and how a factor based on announcement timing reduces the mispricing. SMB and HML’s exposure to this factor accounts for all of their seasonal alpha reduction and one third of their overall alpha reduction. After accounting for size and book-to-market, a firm’s exposure to SMB and HML varies with its earnings announcement timing.