Associate Professor Mungo Wilson is a joint runner up for this year’s Amundi Smith Breeden Prize, which selects the top three papers in The Journal of Finance each year, as chosen by the journals associate editors. ‘It is wonderful to have been given this award, and to have this research recognised by our peers,’ he said.
The award winning paper, Earnings Announcements and Systematic Risk, was written in conjunction with Associate Professor Pavel Savor of the Fox School of Business. It looks at the ‘annualized abnormal return of 9.9% of firms that are scheduled to report earnings,’ and proposes a risk-based explanation for the phenomenon whereby ‘investors use announcements to revise their expectations for nonannouncing firms, but can only do so imperfectly.’
‘This was a very old so-called anomaly, first discovered in 1968,’ explained Professor Wilson. ‘It was once widely viewed as providing the final evidence that stock markets were inefficient. However, we have put forward a rational explanation. It follows from the observation that investors learn about the wider market and wider economy from the earnings announcements of individual companies.’
The paper is part of Professor Wilson’s ongoing body of work on scheduled announcements. ‘The arrival of news is supposed to be random,’ he said, ‘and it is often suggested that because news is random, price movements should be random. Now, this is true for the content of news, but the timing of news announcements does not have to be random. What that means is you have the opportunity to look for things, and so that forms the wider agenda for my research.’
The Journal of Finance is one of the most highly cited and impactful journals in its field, and is the official journal of the American Finance Association.