The Changing Behavior of Trading Volume Reactions to Earnings Announcements: Evidence of the Increasing Use of Accounting Earnings News by Investors

53 Pages Posted: 5 Mar 2016

See all articles by Orie E. Barron

Orie E. Barron

Pennsylvania State University

Richard A. Schneible Jr.

State University of New York (SUNY) at Albany

Douglas E. Stevens

Georgia State University - Robinson College of Business

Date Written: February 28, 2015

Abstract

The increase in investor diversity over the last 35-40 years (ICI 2014) prompted us to revisit trading volume reactions to earnings announcements and how these reactions vary with firm size. This increase in investor diversity would likely lead to an increase in differences in the precision of pre-announcement information and potentially increase the importance of earnings announcements to resolve investor disagreement. We find that the nature of trading volume reactions to earnings announcements has fundamentally changed over the 35-year time period 1977-2011. There has been a dramatic increase in the magnitude and frequency of volume reactions to earnings announcements over this time period, and this effect is more pronounced in large firms where volume reactions were previously infrequent. The increase in large firms’ trading volume reactions is so pronounced that the relation between volume reactions and firm size has turned positive in recent years, thereby reversing Bamber’s (1986, 1987) previously documented negative relation. We provide intuition and empirical evidence that our results are attributable to the resolution of differential prior precision among an increasingly diverse set of investors following large firms.

Keywords: Earnings announcements, Trading volume reactions, Investor diversity, Firm size

JEL Classification: G1, M4

Suggested Citation

Barron, Orie E. and Schneible, Richard and Stevens, Douglas E., The Changing Behavior of Trading Volume Reactions to Earnings Announcements: Evidence of the Increasing Use of Accounting Earnings News by Investors (February 28, 2015). Available at SSRN: https://ssrn.com/abstract=2741888 or http://dx.doi.org/10.2139/ssrn.2741888

Orie E. Barron (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-863-3230 (Phone)
814-863-8393 (Fax)

Richard Schneible

State University of New York (SUNY) at Albany ( email )

Albany, NY 12222
United States

Douglas E. Stevens

Georgia State University - Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States
404-413-7212 (Phone)
404-413-7203 (Fax)

HOME PAGE: http://robinson.gsu.edu/profile/douglas-e-stevens/

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