The Calm Before the Storm

62 Pages Posted: 10 Mar 2013 Last revised: 20 May 2015

See all articles by Ferhat Akbas

Ferhat Akbas

University of Illinois at Chicago - College of Business Administration

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

Akbas, Ferhat, The Calm Before the Storm (May 19, 2015). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2230698 or http://dx.doi.org/10.2139/ssrn.2230698

Ferhat Akbas (Contact Author)

University of Illinois at Chicago - College of Business Administration ( email )

601 South Morgan Street
11th Floor
Chicago, IL 60607
United States

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