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Evidence of Informed Trading Prior to Earnings AnnouncementsJohn Affleck-GravesUniversity of Notre Dame - Department of Finance Robert H. JenningsIndiana University Bloomington - Kelley School of Business Richard R. MendenhallUniversity of Notre Dame - Department of Finance January 1995 NYU Working Paper No. FIN-94-001 Abstract: This study examines transactions in stocks during the thirty trading days prior to earnings announcements. Using two methodologies, we find evidence of informed trading for initiators of large transactions (presumably institutions) but not for initiators of small transactions (presumably individuals). Specifically, we find that, relative to a control period, initiators of large transactions tend to buy (sell) stocks prior to earnings announcements that exceed (fall short of) analyst forecasts. In addition, the fraction of total stock price movement that occurs on large transactions is substantially higher during the pre-announcement period than during the control period. Results of both tests suggest, contrary to previous research, that some large traders have and use superior private information prior to large earnings surprises.
Number of Pages in PDF File: 22 working papers seriesDate posted: November 11, 2008Suggested CitationContact Information
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