Early Movers Advantage? Evidence from Short Selling During After‐Hours on Earnings Announcement Days

30 Pages Posted: 3 Apr 2019

See all articles by Archana Jain

Archana Jain

Rochester Institute of Technology

Chinmay Jain

University of Ontario Institute of Technology

Christine X. Jiang

Fudan University

Multiple version iconThere are 2 versions of this paper

Date Written: May 2019

Abstract

We examine short sellers’ after‐hours trading (AHT) following quarterly earnings announcements released outside of the normal trading hours. Our innovation is to use the actual short trades immediately after the announcements. We find that on these earnings announcement days, there is significant shorting activity in AHT relative to shorting activity both during AHT on nonannouncements days and during regular trading sessions around announcements. Short sellers who trade after‐hours on announcement days earn an excess return of 0.82% and 1.40% during before‐market‐open (BMO) and after‐market‐close (AMC)sessions, respectively. The magnitude of these returns increases to 1.48 (3.92%) for BMO (AMC) earnings announcements with negative surprise. We find that the reactive short selling during AHT has information in predicting future returns. Short sellers’ trades have no predictive power if they wait for the market to open to trade during regular hours. In addition, we find that the weighted price contribution during AHT increases with an increase in after‐hours short selling. Overall, our results suggest that short sellers in AHT are informed. Our findings remain robust using alternative holding periods and after controlling for macroeconomic news announcements during BMO sessions.

Keywords: short selling, after‐hours trading, earnings announcements

JEL Classification: G10, G12, G14

Suggested Citation

Jain, Archana and Jain, Chinmay and Jiang, Christine X., Early Movers Advantage? Evidence from Short Selling During After‐Hours on Earnings Announcement Days (May 2019). Financial Review, Vol. 54, Issue 2, pp. 235-264, 2019, Available at SSRN: https://ssrn.com/abstract=3364526 or http://dx.doi.org/10.1111/fire.12174

Archana Jain (Contact Author)

Rochester Institute of Technology ( email )

Rochester, NY 14623
United States

Chinmay Jain

University of Ontario Institute of Technology ( email )

2000 Simcoe Street North
Oshawa, Ontario L1H 7K4
Canada

Christine X. Jiang

Fudan University ( email )

School of Management
Shanghai, 200433
China
862125011085 (Phone)

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