Does Trading Volume Increase or Decrease Prior To Earnings Announcements?

Advances in Quantitative Analysis of Finance and Accounting, Forthcoming

52 Pages Posted: 19 Jul 2016 Last revised: 11 Sep 2016

See all articles by Sangwan Kim

Sangwan Kim

University of Massachusetts Boston

Steve C. Lim

Texas Christian University - M.J. Neeley School of Business

Date Written: July 12, 2016

Abstract

This paper reports two empirical regularities regarding trading volume prior to earnings announcements. The literature suggests that discretionary liquidity traders postpone their equity trading until firms publicly announce earnings due to high information asymmetry before anticipated information events. Our first finding is that pre-announcement trading volume increases for firms with high analyst coverage. Our second finding is that preannouncement trading volume decreases for firms with low analyst coverage and trading volume prior to bad news is lower than good news earnings announcements. Our findings suggest that the intensity of analyst activity and the nature of mandatory earnings news jointly determine the direction and magnitude of pre-announcement trading volume. We contribute to the literature by showing that analysts’ information discovery (temporarily pushed back trading demand) prior to earnings announcements may understate (overstate) the magnitude of a short-window trading volume reaction to earnings announcements as measures of information content for firms with high (low) analyst coverage.

Keywords: Analyst coverage; preemptive disclosures; trading volume; earnings announcements

JEL Classification: G14; M41

Suggested Citation

Kim, Sangwan and Lim, Steve, Does Trading Volume Increase or Decrease Prior To Earnings Announcements? (July 12, 2016). Advances in Quantitative Analysis of Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2810624 or http://dx.doi.org/10.2139/ssrn.2810624

Sangwan Kim

University of Massachusetts Boston ( email )

100 Morrissey Blvd.
Boston, MA 02125
United States

Steve Lim (Contact Author)

Texas Christian University - M.J. Neeley School of Business ( email )

2900 Lubbock Street
Fort Worth, TX 76129
United States
817-257-7536 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
203
rank
147,039
Abstract Views
1,087
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information