The Impact of Timing of the Release of Firm-Specific Announcements on Trade Initiation

Abstract

This paper investigates trade initiation activities ‘immediately’ before and after earnings and takeover ‘day’ announcements. We find that investors’ initiate buy and sell (buy or sell) trades immediately before (after) earnings and takeover day announcements. High volatility and more prominent effective spread before ‘overnight’ announcements indicate active informed trading, showing evidence of information leakage. Similarly, high volatility and less prominent effective spread before day announcements exhibit more active uninformed trading. Overall, private information (Differential information) is the likely motive for trade initiation before overnight announcements (day announcements). We suggest that day announcements are more effective than overnight announcements in controlling information leakage. Our results complement prior literature on effectiveness of continuous disclosure on the ASX.