Informed Trading Before Positive vs. Negative Earnings Surprises

Posted: 30 Oct 2014

See all articles by Tae Jun Park

Tae Jun Park


Young-Joo Lee

State University of New York (SUNY) - Buffalo

Kyojik Song

Sungkyunkwan University

Date Written: December 1, 2014


This paper investigates whether institutional investors trade profitably around the announcements of positive or negative earnings surprises. Using Korean data over the period of 2001-2010, we find that information asymmetry is larger before negative earnings surprises (earnings shock) among investors and that the trading volume decreases only before earnings shock announcements due to the severe information asymmetry. We also find that institutions sell their stocks prior to earnings shock announcements whereas individual and foreign investors do not anticipate bad news. Finally, we find that institutional trade imbalance is positively related to the post-announcement abnormal returns of negative events. This study complements and extends prior literature on informed trading around earnings announcements by documenting evidence that domestic institutions exploit their superior information around particularly earnings shock announcements.

Keywords: Information asymmetry, Earnings surprises, Trading volume, Trade imbalance, Institutional investors

JEL Classification: G10, G30

Suggested Citation

Park, Tae-Jun and Lee, Young-Joo and Song, Kyojik, Informed Trading Before Positive vs. Negative Earnings Surprises (December 1, 2014). Journal of Banking and Finance, Vol. 49, No. 1, 2014, Available at SSRN:

Tae-Jun Park

Independent ( email )

Young-Joo Lee

State University of New York (SUNY) - Buffalo ( email )

12 Capen Hall
Buffalo, NY 14222
United States

Kyojik Song (Contact Author)

Sungkyunkwan University ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Seoul, 110-745
Korea, Republic of (South Korea)
82-2-760-0497 (Phone)

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