Tamas Batyi, UC Berkeley: Capacity constraints in earning, and asset prices before earnings announcements

This paper proposes an asset pricing model with endogenous allocation of constrained learning capacity, that provides an explanation for abnormal returns before the scheduled release of information about firms, such as quarterly earnings announcements. In equilibrium investors endogenously focus their learning capacity and acquire information about stocks with upcoming announcements, resulting in excess price movements during this period. I show cross-sectional heterogeneity in stock returns and institutional investors' information demand before quarterly earnings announcements that are consistent with the model. The results suggest that limited information acquisition capacity, and investors' optimal allocation response can play a significant role in asset price movements before firms' scheduled announcements.