Asymmetry, earnings announcements, and the beta-return relation

•The SML reveals a positive slope before earnings announcements and a negative slope afterward.•The shift in the risk-return trade-off is driven by high-beta stocks.•A modified market-timing beta strategy boosts investment profitability. We find that the beta–return relationship is asymmetric around earnings announcements. The security market line has a positive slope in the days leading up to earnings announcements, but a negative slope in the days that follow. This striking shift in the risk–return trade-off is driven primarily by high-beta stocks. Moreover, a modified conditional market-timing beta strategy, incorporating the timing of earnings announcements, enhances profitability. Overall, the results lend empirical support to the theoretical predictions of Hong and Sraer (2016), which posit that beta amplifies disagreements regarding the stock market's prospects.