Strategic Trading at the Preopening after Earnings Announcements

Journal of Financial Reporting, Forthcoming

37 Pages Posted: 13 Oct 2016 Last revised: 15 Jun 2020

See all articles by Shai Levi

Shai Levi

Tel Aviv University

Xiao-Jun Zhang

University of California, Berkeley; China Academy of Financial Research (CAFR)

Date Written: June 13, 2020

Abstract

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

Levi, Shai and Zhang, Xiao-Jun, Strategic Trading at the Preopening after Earnings Announcements (June 13, 2020). Journal of Financial Reporting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2851555 or http://dx.doi.org/10.2139/ssrn.2851555

Shai Levi (Contact Author)

Tel Aviv University ( email )

Tel Aviv, 69978
Israel

Xiao-Jun Zhang

University of California, Berkeley ( email )

545 Student Services Building
SPC 1900
Berkeley, CA 94720
United States
(510) 642-4789 (Phone)
(510) 642-4700 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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