Earnings Announcements and Market Depth
Posted: 7 Jul 1998
This paper presents a model of strategic behavior by a privately informed trader and liquidity traders near to the anticipated release of public signals such as earnings announcements. The private information of the informed trader is long-lived in the sense that the public signal does not completely eliminate the informed trader's informational advantage. In keeping with recent empirical findings, conditions are identified under which market depth may be higher or lower after earnings announcements than before. Previous studies predicting lower depth following the release of public signals assume that private information is short-lived, and rely on the arrival of new private information at that time. This distinction in the longevity of private information is important since earnings announcements are unlikely to fully reveal private information acquired beforehand.
Note: This abstract was never entered as a working paper. Gail L. Pratt 7/7/98
JEL Classification: G14
Suggested Citation: Suggested Citation