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The Timing of Earnings Announcements and Volatility

63 Pages Posted: 6 Nov 2017  

Matthew R. Lyle

Northwestern University - Kellogg School of Management

Christopher Rigsby

Northwestern University, Kellogg School of Management

Andrew Stephan

University of Colorado at Boulder Leeds School of Business

Teri Lombardi Yohn

Indiana University - Kelley School of Business - Department of Accounting

Date Written: November 4, 2017

Abstract

Approximately 95 percent of publicly traded firms announce earnings outside of regular trading hours, either in the pre-open (before the opening bell, PO) or in the post-close (after the closing bell, PC). We examine whether the timing of the announcement affects how quickly equity investors process the earnings information. We find greater abnormal volatility in the five days after earnings are announced for announcements made in the PO versus PC and farther from either the open or close of regular trading, suggesting a delayed response to earnings. We also find greater abnormal trading volume in the days after the announcement, a smaller earnings response coefficient on the first trading day after the earnings announcement, and slower incorporation of earnings news into prices in the five days after the announcement for earnings announced in the PO versus PC and farther from the open or close of regular trading. The delayed processing findings cannot be explained by firm and earnings characteristics such as firm size, profitability, earnings surprises, stock returns, or historical volatility, and is not driven by time zone, the content of the earnings announcement, the number of earnings issued on the same day, lead time, or the timing of the associated conference call. Finally, we find that option trading strategies based on PO versus PC and high versus low distance from regular trading hours yield economically large returns.

Keywords: Volatility, Earnings Announcements, Disclosure Timing, Option Returns

JEL Classification: G12, G14, G17

Suggested Citation

Lyle, Matthew R. and Rigsby, Christopher and Stephan, Andrew and Yohn, Teri Lombardi, The Timing of Earnings Announcements and Volatility (November 4, 2017). Kelley School of Business Research Paper No. 17-75. Available at SSRN: https://ssrn.com/abstract=3064160

Matthew Lyle (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Christopher Rigsby

Northwestern University, Kellogg School of Management ( email )

Evanston, IL
United States

Andrew Stephan

University of Colorado at Boulder Leeds School of Business ( email )

419 UCB
Boulder, CO 80309-0419
United States

Teri Yohn

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
(812) 855-0430 (Phone)

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