Differential Precision of Predisclosure Information Across Traders and Trading Volume at Earnings Announcements

36 Pages Posted: 13 Sep 2004

See all articles by Ashiq Ali

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Sandy Klasa

University of Arizona - Department of Finance

Oliver Zhen Li

National University of Singapore (NUS)

Date Written: September, 2004

Abstract

Kim and Verrecchia (1991a) propose that volume reaction to a public announcement is proportional to the product of absolute price change at the announcement and a measure of differential precision of predisclosure information across traders. We use ownership by institutions with medium stakes (between 1 to 5 percent of outstanding shares) as a measure of differential information precision, given that these institutional investors, as compared to other institutional and individual investors, are likely to have more precise predisclosure information and are more likely to trade at earnings announcements based on their belief revision about stock value. We examine this proposition in the context of earnings announcements and obtain results consistent with the theory. Tests of the theory by prior studies have yielded somewhat inconclusive results.

Suggested Citation

Ali, Ashiq and Klasa, Sandy and Li, Oliver Zhen, Differential Precision of Predisclosure Information Across Traders and Trading Volume at Earnings Announcements (September, 2004). Available at SSRN: https://ssrn.com/abstract=590245 or http://dx.doi.org/10.2139/ssrn.590245

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)

HOME PAGE: http://www.utdallas.edu/~axa042200/

Sandy Klasa

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-8761 (Phone)

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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