The Speed of the Market Reaction to Pre-Open versus Post-Close Earnings Announcements
70 Pages Posted: 6 Nov 2017 Last revised: 11 May 2019
Date Written: May 9, 2019
The vast majority of U.S. publicly traded firms announce outside of regular trading hours, with 48 percent announcing in the pre-open (between midnight and the opening bell, or PO) and 52 percent in the post-close (between the closing bell and midnight, or PC). We provide a stylized model which shows that if investors require time to process earnings news, then the market reaction to PO earnings announcements will be slower than to PC announcements because PO announcements offer less time to process earnings news before regular trading begins. Consistent with this prediction, we empirically document that PO announcements have greater abnormal volatility, news, analyst forecast revisions, and EDGAR downloads in the days after the announcement and a slower incorporation of earnings news into prices as compared to PC announcements. Further, we find that option and equity trading strategies based on PO versus PC announcements yield significant excess returns, suggesting that options and equity traders do not exploit this predictable pattern of a slower market reaction to PO versus PC announcements.
Keywords: Volatility, Earnings Announcements, Disclosure Timing, Option Returns
JEL Classification: G12, G14, G17
Suggested Citation: Suggested Citation