Strategic Trading at the Preopening after Earnings Announcements
36 Pages Posted: 13 Oct 2016 Last revised: 17 Sep 2018
Date Written: September 7, 2018
Prior literature finds the price adjustment after earnings announcements is not immediate. This paper shows that informed investors act strategically to prevent their information from immediately affecting prices after announcements. Specifically, we examine the price discovery at the preopening auction after earning 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 make profits on these late orders.
Keywords: earnings announcements, price discovery, preopening, informed trading
JEL Classification: G14, M41
Suggested Citation: Suggested Citation