Bid-Ask Spreads Around Earnings Announcements

35 Pages Posted: 7 Jan 2001

See all articles by Daniella Acker

Daniella Acker

University of Bristol - Department of Accounting and Finance

Mathew Stalker

University of Bristol - Department of Economics

Ian Tonks

University of Bristol - Department of Finance and Accounting

Date Written: September 15, 2000

Abstract

This paper examines the determinants of bid-ask spreads and their behaviour around corporate earning announcement dates, for a sample of UK firms over the period 1986-94. The paper finds that closing daily spreads are affected by order processing costs (proxied by trading volumes), inventory control costs (trading volumes and return variability) and asymmetric information (unusually high trading volumes). Spreads start to narrow 15 days before an earnings announcement, and narrow further by the end of the announcement day. We also identify a puzzling phenomenon. There is only a 'sluggish' recovery of spreads after the announcement: spreads continue to remain at relatively narrow levels, and take up to 90 days to recover to their pre-announcement width.

JEL Classification: M4, G1

Suggested Citation

Acker, Daniella and Stalker, Mathew and Tonks, Ian, Bid-Ask Spreads Around Earnings Announcements (September 15, 2000). EFA 2000 London Meeting, Available at SSRN: https://ssrn.com/abstract=253047 or http://dx.doi.org/10.2139/ssrn.253047

Daniella Acker (Contact Author)

University of Bristol - Department of Accounting and Finance ( email )

12 Priory Road
Bristol, BS8 1TN
United Kingdom
+44 117 394 1476 (Phone)

HOME PAGE: http://www.bristol.ac.uk/efm/people/daniella-e-acker/overview.html

Mathew Stalker

University of Bristol - Department of Economics

8 Woodland Road
Bristol BS8 ITN
United Kingdom

Ian Tonks

University of Bristol - Department of Finance and Accounting ( email )

Department of Finance and Accounting
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

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