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Spreads, Depths, and the Impact of Earnings Information: An Intraday Analysis

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Author Info
Lee, Charles M C
Mucklow, Belinda
Ready, Mark J

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Abstract

For a sample of NYSE firms, we show that wide spreads are accompanied by low depths, and that spreads widen and depths fall in response to higher volume. Spreads widen and depths fall in anticipation of earnings announcements; these effects are more pronounced for announcements with larger subsequent price changes. Spreads are also wider following earnings announcements, but this effect dissipates quickly after controlling for volume. Collectively, our results suggest liquidity providers are sensitive to changes in information asymmetry risk and use both spreads and depths to actively manage this risk. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 6 (1993)
Issue (Month): 2 ()
Pages: 345-74
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Handle: RePEc:oup:rfinst:v:6:y:1993:i:2:p:345-74

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  1. Miguel Angel Martinez & Gonzalo Rubio & Mikel Tapia, 2003. "Understanding the ex-Ante cost of liquidity in the limit order book: A note," DFAEII Working Papers 200203, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
  2. Ana González & Gonzalo Rubio, 2007. "Portfolio Choice and the Effects of Liquidity," Economics Working Papers 1035, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  3. Foucault, Thierry & Moinas, Sophie & Theissen, Erik, 2003. "Does Anonymity Matter in Electronic Limit Order Markets?," CEPR Discussion Papers 4091, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Simon H. Kwan & Mark J. Flannery & M. Nimalendran, 1999. "Market evidence on the opaqueness of banking firms' assets," Working Papers in Applied Economic Theory 99-11, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  5. Valeri Voev, 2006. "A Trade-by-Trade Surprise Measure and Its Relation to Observed Spreadson the NYSE," CoFE Discussion Paper 06-03, Center of Finance and Econometrics, University of Konstanz. [Downloadable!]
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