The Timing of Earnings Announcements and Volatility
63 Pages Posted: 6 Nov 2017
Date Written: November 4, 2017
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: Suggested Citation