How Is Earnings News Transmitted to Stock Prices?

50 Pages Posted: 1 Nov 2017 Last revised: 12 Dec 2018

See all articles by Vincent Gregoire

Vincent Gregoire

HEC Montreal - Department of Finance

Charles Martineau

University of Toronto

Date Written: December 10, 2018


We study price formation around earnings announcements for S\&P 1500 stocks from 2011 to 2015 to understand the relationship between liquidity and price efficiency. Earnings are announced in the after-hours market, an illiquid trading environment with low trading volume. Bid-ask spreads are wide before announcements and the narrowing of spreads post-announcement is asymmetric: ask (bid) prices update instantaneously after positive (negative) news, while the other side is slower to adjust. On average, pre-announcement spreads include the post-announcement midquote price, leaving no profits for liquidity-takers. Stock prices fully reflect earnings surprises before the opening of markets even when there are no trades.

Keywords: after-hours trading, earnings announcements, liquidity, order flow, price discovery

JEL Classification: G10, G12, G14

Suggested Citation

Gregoire, Vincent and Martineau, Charles, How Is Earnings News Transmitted to Stock Prices? (December 10, 2018). Available at SSRN: or

Vincent Gregoire

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7

Charles Martineau (Contact Author)

University of Toronto ( email )

105 St-George
Toronto, Ontario M5S3E6


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