Fund Managers' Awareness of Announcement Premiums: A Study on Fund Managers' Investment Decisions

Abstract: In this paper, we interview fund managers of actively managed Swedish mutual funds to understand how they trade around earnings announcements. Based on an academic paper that we use as the basis for our paper, the authors of the paper find that fund managers on average tend to decrease their exposure to stocks ahead of earnings announcements, even though there is a significantly increased risk-reward and earnings announcement premium to earn ahead of the announcements. This is a new finding since the most logical would be to increase exposure ahead of the earnings announcements to earn the premium at a better risk-reward. These authors provide a possible explanation for this puzzle using a new stylized fact: stock holdings with significant negative realizations cause additional fund outflows. This thesis aims to understand, through interviews, if fund managers are aware of the earnings announcement premium and how they trade around these events. We find that most fund managers are not aware of the earnings announcement premiums. On average they are reluctant to buy ahead of the earnings announcements, which is consistent with the finding in the academic paper. We also find that no fund manager is aware of the significant outflows from their funds when a portfolio company has a negative realization.