How Is Earnings News Transmitted to Stock Prices?

48 Pages Posted: 1 Nov 2017 Last revised: 10 Apr 2018

Vincent Gregoire

University of Melbourne - Department of Finance

Charles Martineau

University of Toronto

Date Written: March 11, 2018

Abstract

We study price formation in the after-hours market following earnings announcements for S&P 1500 stocks from 2011 to 2015 using high-frequency, order-level data. Price discovery is generally complete before the opening auction, or by 10 a.m. for stocks with no after-hours trades. Initial price reactions following announcements are explained by earnings surprises, not by liquidity-taking order flow, consistent with the theoretical view that prices can incorporate news instantly. Moreover, sophisticated liquidity providers are active and profitable at that time. We find significant price drifts following big surprises in the after-hours market, which we relate to theoretical work on information processing.

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? (March 11, 2018). Available at SSRN: https://ssrn.com/abstract=3060094 or http://dx.doi.org/10.2139/ssrn.3060094

Vincent Gregoire

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Charles Martineau (Contact Author)

University of Toronto ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

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