Actively Managed Funds and Earnings News: Evidence from Trade-Level Data
Stanford University Graduate School of Business Research Paper No. 18-35
29th Annual Conference on Financial Economics & Accounting 2018
54 Pages Posted: 27 Jul 2018 Last revised: 29 Jan 2019
Date Written: September 28, 2018
Abstract
We use trade-level data to examine the role of actively managed funds (AMFs) in earnings news dissemination. AMFs trade (172 percent) more on earnings announcement (EA) days than on non-EA days. The EA buys made by AMFs are reliably more profitable than their non-EA buys. At the fund level, AMFs with higher trading intensity during EAs are also more profitable than AMFs with lower trading intensity during EAs. Furthermore, we find that increased AMF trading during EAs reduces post earnings announcement drift (PEAD) and leads to faster price adjustment, measured in various ways. Moreover, the directional trades of AMFs generally shift returns from the post-EA period to the EA period. Collectively, our evidence suggests that AMFs are relatively sophisticated processors of earnings news and that their trading during EAs improves the price discovery process.
Keywords: actively managed funds, earnings announcements, information processing, price efficiency, post earnings announcement drift, trading volume
JEL Classification: G12, G14, G23, M41
Suggested Citation: Suggested Citation
Charles M.C. Lee
Stanford University - Graduate School of Business ( email )
Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)
Christina Zhu (Contact Author)
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
