A Theory of Trading Volume Around Earnings Announcements

Posted: 20 Jan 1997

See all articles by Seok Woo Jeong

Seok Woo Jeong

Korea University - Department of Accounting

Pradyot K. Sen

affiliation not provided to SSRN

Date Written: November 1996

Abstract

Kim and Verrecchia (1994) provide a model of trade to explain trading volume around public disclosure which is assumed to be earnings announcement. However, their characterization of information is too general and has no relationship with the accounting information structure. Ohlson (1995) provides a fundamental valuation model that exploits the accounting relationship of earnings, book value, and dividends, but no implication can be made on the trading volume around earnings announcements from his model. We impose an information structure on the Kim and Verrecchia (1994) model whereby some market participants estimate fundamental value of the firm according to Ohlson's (1995) valuation model but differ in their assessment of permanent and transitory components of earnings. Our results demonstrate a positive relation between abnormal earnings and both trading volume and price changes around earnings announcements.

JEL Classification: G41, G12

Suggested Citation

Jeong, Seok Woo and Sen, Pradyot K., A Theory of Trading Volume Around Earnings Announcements (November 1996). Available at SSRN: https://ssrn.com/abstract=2860

Seok Woo Jeong

Korea University - Department of Accounting ( email )

Seoul, 136-701
Korea

Pradyot K. Sen (Contact Author)

affiliation not provided to SSRN

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