# Trading on Earnings Day — Announcement Premium, PEAD, and Pre-Announcement Prediction: Three Hypotheses Tested on 34,504 Events
- Source: FoldAlpha Research (https://app.foldalpha.com/en/research/earnings-announcement-event) · Published: 2026-09-07 · Series: Myth Testing 19

"US stocks often rise sharply after earnings announcements. What if you bought on the announcement date, anticipating the results?" We split this question into three hypotheses, pre-registered them, and tested them.
Having just been through a look-ahead error on entry timing in [Article 17](/en/research/insider-cluster-recheck) last week, this time we **fixed the entry protocol before writing the code** and eyeballed a sample of actual entry dates.

## Data — Where Do Announcement Dates Come From?

Our DB has only quarter-end dates and **no announcement dates.** From SEC's per-company filing list (submissions API), we treated 8-K filings tagged with **Item 2.02 (Results of Operations)** as earnings announcements.
Filing timestamps are provided down to the minute, giving us 116,524 events across 1,532 tickers. The match rate against quarterly financials (2020–) was 93.3%, for **34,504 events (2021–2026)** in scope.

Distribution of announcement times: **52% after the close, 44% before the open, 4% intraday.** This distribution determines the entry protocol —
for before-the-open announcements, enter at that day's open; otherwise at the next trading day's open. We mechanically confirmed 0 protocol violations.

Since we have no analyst consensus, surprise is defined by the time-series standard (SUE = year-over-year change in EPS for the same quarter ÷ standard deviation of the change over the past 8 quarters). The benchmark is the equal-weighted universe, with 0.2% round-trip costs.

**Pre-specified decision rule**: positive after costs in all three sub-periods — 2021–22 / 2023–24 / 2025–26 — with monthly non-overlapping t ≥ 2.

## H1 — Announcement Premium (direction-agnostic, buy at D−5 close → sell at the first open after the announcement)

| Period | n | vs. market | t |
|---|---|---|---|
| 2021–22 | 11,274 | −0.15% | −1.5 |
| 2023–24 | 11,917 | +0.21% | 2.9 |
| 2025–26 | 10,593 | +0.09% | 1.1 |

Rejected. That said, the **announcement reaction itself** (last close before the announcement → first traded open) was stable at +0.20–0.25% across all three sub-periods, with an overall t of 5.2.
The premium is real — its size is **exactly equal to round-trip transaction costs.**

## H2 — Post-Earnings-Announcement Drift (PEAD)

The canonical anomaly in the literature. Buy top-ranked stocks after the surprise is public and hold for 20 and 60 trading days.

| Signal | 20-day overall | By sub-period |
|---|---|---|
| Buy on reaction gap ≥ +5% | −0.18% (t −1.0) | +0.07 / +0.62 / **−0.68** |
| Buy on SUE ≥ +1 | −0.08% (t −0.4) | +0.62 / **−0.51** / **−0.56** |

**The long side is rejected.** It works in 2023–24 and flips in 2025–26. By decile as well, the top decile (D10) is negative and only D9 is positive — being higher-ranked is not better.

## The Only Result Consistent Across All Three Sub-Periods

| Signal | 20-day | 60-day | 60-day by sub-period |
|---|---|---|---|
| **SUE ≤ −1 (negative surprise)** | −0.74% (t −3.0) | **−1.61% (t −3.8)** | −2.55 / −1.25 / −0.78 |
| Sensitivity: 4-quarter denominator | −0.59% (t −3.4) | −1.13% (t −4.0) | −2.02 / −0.97 / −0.09 |

**Stocks that posted a negative surprise continued to lag for the following three months.** The sign never flipped in any of the three sub-periods.
This is consistent with the literature — in large caps, the long side of PEAD is arbitraged away first, and only the short side, where short-sale constraints bind, remains.

Since we do not short, we **cannot use this as a trading signal.** But it has another use:
an avoidance filter that **excludes stocks whose prior-quarter SUE is ≤ −1** from a monthly momentum portfolio. The point is not to find a buy signal but to avoid a known laggard group.
At the time of publication this was an untested hypothesis. We pre-registered and ran it the same day; the results are in the added section below.

> **Follow-up test (added 2026-09-07) — rejected.** We tested the filter "exclude stocks that announced SUE < −1 within the last 60 trading days" on the current monthly momentum strategy (top 10 of the S&P 500).
> ① **The filter almost never triggered**: flagged names among the top 10 averaged 0.21 per month (8 occurrences over 36 months). Stocks that took an earnings shock had already dropped out of the momentum ranking.
> ② **The ones that remained actually did better**: stocks that held onto a top-10 spot despite a shock had next-month excess returns of +1.7% (t 0.9), and +5.7% (n=44, t 1.5) when widened to a −5% reaction-gap criterion. The sign is the opposite of what was expected — a selection effect in which a stock that kept its momentum through a shock is a strong stock.
> ③ The IR of the filtered arm was at or below the baseline arm under every definition and sub-period (−0.06 overall, −0.25 in 2025).
> Lesson: moving an event effect measured across the full universe into a conditional-on-top-of-a-specific-ranking setting can flip its sign. We do not add a filter until it has been re-tested conditionally.

## H3 — Pre-Announcement Prediction (the original question)

We pre-fixed four predictors knowable as of D−5: prior-quarter SUE, 60-day momentum, insider open-market purchases within 90 days before the announcement, and revenue growth acceleration. The combination is a simple average of ranks.

| Predictor | IC with reaction gap | t |
|---|---|---|
| Prior-quarter SUE | −0.010 | −0.65 |
| 60-day momentum | +0.006 | +0.73 |
| Insider buying | −0.006 | −0.79 |
| Revenue acceleration | −0.005 | −0.46 |
| **Combined** | **−0.009** | **−1.06** |

All zero. Buying the top 20% gives no edge either — the top quintile is positive not because of prediction but because of the **+0.2% premium shared by every event**, and the bottom quintile is positive too (in 2025–26 the bottom is higher).
And "top predicted" stocks actually lag over the 20 days **after** the announcement (−0.45%, t −3.3). Momentum right before the announcement reverses after it.

## What These Results Say

- An earnings announcement is an event whose information half-life is **the moment of announcement**. After it, everything is already priced in; before it, public information does not tell you the direction. This is the extreme form of a proposition this series has confirmed repeatedly
- **Had we looked only at 2023–24, all three hypotheses would have "worked."** Without the pre-specified three-sub-period rule, we would have picked that window and claimed a discovery
- What is left is not a buy signal but one piece of material for an avoidance filter. And that too is untested

## Limitations

- Current-constituent universe (survivorship bias). Because stocks delisted after an earnings shock are excluded, the underperformance of negative surprises may be measured as **less** bad than it actually was
- EPS is the current-point value, so post-hoc restatements may be mixed in (not as-reported). A slight look-ahead margin in SUE
- SUE is only computable from 2023H2 onward because of the 8-quarter denominator requirement. The H1 and reaction-gap tests run from 2021–
- H1 assumes the announcement date is known in advance (most are pre-announced 1–2 weeks ahead)

## Data Sources

- SEC EDGAR submissions API (8-K Item 2.02, filing timestamps), quarterly financials (stockanalysis), self-collected US daily open/close prices

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This article documents tests on historical data for informational purposes only. It is not investment advice or a recommendation to buy or sell any security. Past test results do not guarantee future returns.