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How Is Earnings News Transmitted to Stock Prices?

73 Pages Posted: 1 Nov 2017 Last revised: 14 Jan 2018

Vincent Gregoire

University of Melbourne - Department of Finance

Charles Martineau

Rotman School of Management and UTSC

Date Written: January 13, 2018

Abstract

We study price formation around earnings announcements for S&P 1500 stocks from 2011 to 2015 using high-frequency, order-level data. Price discovery is generally complete in the after-hours market, 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 news can incorporate prices instantly. Moreover, sophisticated liquidity providers are active and profitable at that time. Despite fast price discovery, 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? (January 13, 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)

Rotman School of Management and UTSC ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

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