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Abstract
If it seems like earnings announcements are the bane of stock prices, that’s probably because they often are: About 70% of all price crashes in 2014 were related to earnings announcements.
That’s the chilling finding reported by Richard Sloan , a professor at the University of California, Berkeley ’s Haas School of Business and his co-authors Korcan Ak, Steven Rossi and Scott Tracy.
To help asset managers defend their portfolios—and their reputations—from stock price crashes, the authors identified five “crash-risk flags.” They find that holdings with three or more flags warrant serious concern.
“It’s not only about avoiding crashes, but earning higher returns and lowering risk,” explains Sloan.
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