Under the Microscope: Trade Initiation Activities Around Earnings and Takeover Announcements in a Market with Continuous Disclosure

Abstract

This paper examines whether release time of earnings and take over announcements influences trade initiation motives. We find that investors’ initiate buy and sell (buy or sell) trades immediately before (after) earnings and takeover day announcements. Volatility is high and effective spread is prominent before overnight announcements. This result suggests active informed trading and potential information leakage. Similarly, high volatility and less prominent effective spread before day announcements imply active uninformed trading. Private information (Differential information) is the likely motive for trade initiation before overnight announcements (day announcements). These results show that release time of firm-specific announcements matter in terms of influencing trade initiation motives and market dynamic variables. Our results suggests that day announcements are more effective in controlling information leakage than overnight announcements and complements prior literature on effectiveness of continuous disclosure on the ASX.

Keywords: Overnight Announcements; Day Announcements; Trade Initiation; Information Asymmetry; Differential Information; Informed Trading, Continuous Disclosure

JEL Classification: G11, G12, G14