The Dynamic Informativeness of Scheduled News

Abstract

This paper provides a simple-to-estimate panel data methodology that reveals the dynamic nature of the informativeness of scheduled news before they realize. Our method exploits the discontinuity in the term structure of options around the event to obtain a daily, forward-looking measure of its informativeness. This approach allows to quantify the contribution of a range of market signals to learning about the scheduled event. We apply this measure to earnings announcements and study the relative contributions of signals by equity research analysts, credit ratings, activists, the firm itself and corporate insiders. As expected, we find that analyst forecast and credit rating changes anticipate some information from the earnings announcement. A similar effect arises with insider buys, which suggests that they exploit foreknowledge of the announcement. However, sales by corporate insiders carry information about the volatility of the scheduled news, consistent with the overexposure of these agents to firm value which translates into a preference to avoid the uncertainty produced by the event.

Keywords: Corporate Disclosure, Scheduled News, Earnings Announcements, Option Prices, Informed Trading, Financial Analysts

JEL Classification: G14, G30, M40, M41