Strategic Trading at the Preopening after Earnings Announcements
Journal of Financial Reporting, Forthcoming
37 Pages Posted: 13 Oct 2016 Last revised: 15 Jun 2020
Date Written: June 13, 2020
Prior literature finds the price adjustment after earnings announcements is not immediate. This paper provides evidence that informed investors act strategically to prevent their information from immediately affecting prices after earnings announcements. Specifically, we examine the price discovery at the preopening auction after earnings announcements. We show that traders place more orders at the end of the preopening after earnings announcements, a behavior that reduces the market’s ability to learn their information, and we find they profit from these late orders.
Keywords: earnings announcements, price discovery, preopening, informed trading, liquidity, price impact
JEL Classification: G14, M41
Suggested Citation: Suggested Citation