Earnings Announcements and the Rise of Passive Ownership

74 Pages Posted: 27 Nov 2018 Last revised: 24 Jun 2020

Date Written: June 23, 2020


This paper proposes a way to measure the effect of rising passive ownership on stock price informativeness that does not rely on any particular model. I examine patterns in trading volume, returns and volatility around days we know information is released: earnings announcements. Between 1990 and 2018, pre-earnings abnormal trading volume and the pre-earnings drift declined, while the share of annual volatility on earnings days increased. At the firm-level, there is a negative relationship between passive ownership and pre-earnings price informativeness. This result is robust to using only quasi-exogenous increases in passive ownership associated with S&P 500 additions and Russell 1000/2000 rebalancing. I link increases in passive ownership to decreases in information gathering: increases in passive ownership are correlated with fewer analysts covering a stock, fewer downloads of SEC filings, and a larger response to earnings news.

Keywords: Passive Ownership, ETFs, Market Efficiency

JEL Classification: G12, G14

Suggested Citation

Sammon, Marco, Earnings Announcements and the Rise of Passive Ownership (June 23, 2020). Available at SSRN: https://ssrn.com/abstract=3243910 or http://dx.doi.org/10.2139/ssrn.3243910

Marco Sammon (Contact Author)

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

HOME PAGE: http://marcosammon.com/

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