Asymmetric decrease in liquidity trading before earnings announcements and the announcement return premium

Shai Levi and Xiao-Jun Zhang

Journal of Financial Economics, 2015, vol. 118, issue 2, 383-398

Abstract: Investors are reluctant to trade in the high-information-asymmetry days before earnings announcements. We show that the decrease in liquidity trading before announcements is asymmetric. We analyze buy and sell orders of investors with passive investment strategies, and find they do not reduce their sales as much as their purchases in the days before announcements. Investors needing liquidity sell stocks at a discount relative to the post-announcement price, and these preannouncement liquidity sales are a significant driver of the average positive returns, or return premium, known to characterize announcement days.

Keywords: Earnings announcement premium; Liquidity (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X15001427
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:118:y:2015:i:2:p:383-398

DOI: 10.1016/j.jfineco.2015.08.003

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().