The Speed of the Market Reaction to Pre-Open versus Post-Close Earnings Announcements

56 Pages Posted: 6 Nov 2017 Last revised: 9 Feb 2020

See all articles by Matthew R. Lyle

Matthew R. Lyle

Northwestern University - Kellogg School of Management

Andrew Stephan

University of Colorado at Boulder Leeds School of Business

Teri Lombardi Yohn

Emory University Goizueta Business School

Date Written: May 9, 2019

Abstract

The vast majority of U.S. public firms announce earnings in the post-close (between the closing bell and midnight, or PC) or the pre-open (between midnight and the opening bell, or PO). Prior literature generally treats PC and PO announcements as equivalent when measuring the market reaction to the announcement. In this study, we provide a model of investor processing of earnings announcements and hypothesize that PO announcements have a slower market reaction to the earnings news than PC announcements. This differential speed of the market reaction is because PC announcements offer investors more time to process and trade on the earnings news before regular trading begins. We find strong empirical evidence that, although the earnings news and cumulative market reaction does not differ between PC and PO announcements, PO announcements incorporate earnings news more slowly in the days after the announcement than PC announcements.

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

JEL Classification: G12, G14, G17

Suggested Citation

Lyle, Matthew R. and Stephan, Andrew and Yohn, Teri Lombardi, The Speed of the Market Reaction to Pre-Open versus Post-Close Earnings Announcements (May 9, 2019). Kelley School of Business Research Paper No. 17-75, Available at SSRN: https://ssrn.com/abstract=3064160 or http://dx.doi.org/10.2139/ssrn.3064160

Matthew R. Lyle (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Andrew Stephan

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

419 UCB
Boulder, CO 80309-0419
United States

Teri Lombardi Yohn

Emory University Goizueta Business School ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

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