Passive Informed Trading Around Earnings Announcements

47 Pages Posted: 17 Nov 2018

See all articles by Brian Roseman

Brian Roseman

Oklahoma State University

James Upson

University of Texas at El Paso

Date Written: October 25, 2018

Abstract

Using a sample of NASDAQ firms we investigate informed trading in the limit order book (LOB) prior to earnings announcements. Consistent with recent limit order theory, and in contrast to classic adverse selection models, we show that informed traders supply liquidity. Relative to a sample of low-shock announcements as a control, we find that for high-shock firms, the spread is lower, the correlation of bid and ask depth is higher, the implied cost of trading is lower, and the information share of component of the limit order book is higher, relative to low-shock earnings announcements.

Keywords: Informed Trading, Limit Order Book, Earnings Announcements

JEL Classification: G10, G14

Suggested Citation

Roseman, Brian and Upson, James, Passive Informed Trading Around Earnings Announcements (October 25, 2018). Available at SSRN: https://ssrn.com/abstract=3273150 or http://dx.doi.org/10.2139/ssrn.3273150

Brian Roseman

Oklahoma State University ( email )

Stillwater, OK 74078
United States

James Upson (Contact Author)

University of Texas at El Paso ( email )

500 West University
El Paso, TX 79968-0545
United States

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