The Induced Effects of Earnings Announcements on Asymmetric Information
Posted: 28 Sep 1997
Date Written: March 1997
This paper reports empirical evidence that earnings announcements generate situations of asymmetric information. The raw and brief characteristics of disclosed data at the time of announcement requires a reprocessing from investors in order to appreciate the health of the firm. According to the degree of precision of the information extracted from disclosed data, some traders become informationally superior. The transient informational advantage immediately posterior to the earnings announcements incites the informed to trade rapidly. From an empirical study led on time-stamped data around the times of earnings announcements, a rise in trading volume can be observed. Because of this informed trading and an uninformed agents' self protection mechanism, the bid-ask spreads widen from the time of earnings announcement. This can be explained by a rise in the asymmetric information cost which is observed just after the time of announcement.
JEL Classification: D82, G14, M41
Suggested Citation: Suggested Citation