The Calm Before the Storm
62 Pages Posted: 10 Mar 2013 Last revised: 20 May 2015
Date Written: May 19, 2015
Abstract
I provide evidence that stocks experiencing unusually low trading volume over a week prior to earnings announcements have more unfavorable earnings surprises. This effect is more pronounced among stocks with higher short-sale restrictions. Moreover, stocks experiencing extreme negative earnings surprise tend to have a higher decrease in abnormal trading volume prior to the announcement. The findings support the idea that under short-sale restrictions, unusually low trading volume is a signal of unfavorable value-relevant information. Change in visibility or risk-based explanations are insufficient to explain the results. The results provide insights into why unusually low trading volume predicts price declines.
Keywords: Trading volume, short-sale restrictions, earnings announcements
JEL Classification: G12, G14
Suggested Citation: Suggested Citation