Informed trading before positive vs. negative earnings surprises

Tae-Jun Park, Youngjoo Lee and Song, Kyojik “Roy”

Journal of Banking & Finance, 2014, vol. 49, issue C, 228-241

Abstract: This paper investigates whether institutional investors trade profitably around the announcements of positive or negative earnings surprises. Using Korean data over the period of 2001–2010, we find that information asymmetry is larger before negative earnings surprises (earnings shock) among investors and that the trading volume decreases only before earnings shock announcements due to the severe information asymmetry. We also find that institutions sell their stocks prior to earnings shock announcements whereas individual and foreign investors do not anticipate bad news. Finally, we find that institutional trade imbalance is positively related to the post-announcement abnormal returns of negative events. This study complements and extends prior literature on informed trading around earnings announcements by documenting evidence that domestic institutions exploit their superior information around particularly earnings shock announcements.

Keywords: Information asymmetry; Earnings surprises; Trading volume; Trade imbalance; Institutional investors (search for similar items in EconPapers)
JEL-codes: G10 G30 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:49:y:2014:i:c:p:228-241

DOI: 10.1016/j.jbankfin.2014.09.016

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