Are the Equity Premium and the Value Premium Expected? Evidence from the Calendar of Cash-Flow News

We show evidence for the hypothesis that corporations regularly summarize fundamentals at calendar-month ends, and such fundamental news correct expectation errors early next month. Across Fama-French 25 size x value portfolios, higher return portfolios have higher return in the first half in excess of return in the second half of a month (R-square 55%). First half month accounts for 72% of the monthly value premium in the biggest ten stock markets in the world. Countries with higher equity premium have higher return in the first half of a month (R-square 72%). The evidence suggests that expectation error has first-order effect on the equity premium and the value premium. The equity premium estimate adjusted for surprises is 4.2% per year, 3.6% below historical average return.