Earnings Announcements and Market Depth
Posted: 11 Sep 1996
This paper investigates how strategic trading around the time of earnings announcements affects market liquidity (e.g., bid-ask spreads). We model an investor with private information in advance of an earnings announcement (e.g., inside information). The investor trades both before and after the earnings announcement in a market populated by liquidity-motivated traders who have some discretion over the time of their trades. The main result of the analysis is that an earnings announcement which reduces and insider's private information may lead to a less liquid market in the post-announcement period.
JEL Classification: M41, G12
Suggested Citation: Suggested Citation