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Earning Announcements and the Components of the Bid-Ask Aspread

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  • I. Krinsky
  • J. Lee
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    Abstract

    This study investigates the behaviour of the components of the bid-ask spread around earnings announcements. We find that adverse selection cost component significantly increases surrounding the announcements while the inventory holding and order processing components significantly decline during the same periods.

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    Bibliographic Info

    Paper provided by McMaster University in its series Quantitative Studies in Economics and Population Research Reports with number 313.

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    Length: 23 pages
    Date of creation: 1996
    Date of revision:
    Handle: RePEc:mcm:qseprr:313

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    Keywords: BIDDING; INFORMATION;

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    Cited by:
    1. Flannery, Mark J. & Kwan, Simon H. & Nimalendran, Mahendrarajah, 2013. "The 2007–2009 financial crisis and bank opaqueness," Journal of Financial Intermediation, Elsevier, vol. 22(1), pages 55-84.
    2. Fishe, Raymond P. H. & Robe, Michel A., 2004. "The impact of illegal insider trading in dealer and specialist markets: evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 71(3), pages 461-488, March.
    3. Daniella Acker & Mathew Stalker & Ian Tonks, 2002. "Daily closing inside spreads and trading volumes around earnings announcements," LSE Research Online Documents on Economics 24908, London School of Economics and Political Science, LSE Library.
    4. Groß-Klußmann, Axel & Hautsch, Nikolaus, 2011. "When machines read the news: Using automated text analytics to quantify high frequency news-implied market reactions," Journal of Empirical Finance, Elsevier, vol. 18(2), pages 321-340, March.
    5. Giuliano Iannotta & Simon Kwan, 2013. "Effects of earnings management and delays in loss recognition on bank opacity," Working Paper Series 2013-35, Federal Reserve Bank of San Francisco.
    6. Perotti, Pietro, 2010. "Order aggressiveness as a metric to assess the usefulness of accounting information," The International Journal of Accounting, Elsevier, vol. 45(3), pages 306-333, September.
    7. Paolo Colla & Antonio Mele, 2008. "Information linkages and correlated trading," LSE Research Online Documents on Economics 24439, London School of Economics and Political Science, LSE Library.
    8. Pronk, M., 2002. "Market Liquidity around Earnings Announcements," Open Access publications from Tilburg University urn:nbn:nl:ui:12-89707, Tilburg University.
    9. Cheng Chee Mun, Eugene & Courtenay, Stephen M. & Rahman, Asheq R., 2011. "Effects of prior voluntary disclosure on earnings announcements in an environment with low information and regulation," Pacific-Basin Finance Journal, Elsevier, vol. 19(3), pages 308-329, June.
    10. Shino Takayama, 2013. "Price Manipulation, Dynamic Informed Trading and Tame Equilibria: Theory and Computation," Discussion Papers Series 492, School of Economics, University of Queensland, Australia.
    11. Chunmei Lin & Massimo Massa & and Hong Zhang, 2014. "Mutual Funds and Information Diffusion: The Role of Country-Level Governance," Tinbergen Institute Discussion Papers 14-079/IV/DSF76, Tinbergen Institute.
    12. Zhou, Deqing, 2013. "Irrational confidence, imperfect and long-lived information," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 383-405.
    13. Frino, Alex & Gerace, Dionigi & Lepone, Andrew, 2008. "Liquidity in auction and specialist market structures: Evidence from the Italian bourse," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2581-2588, December.
    14. Lawrence Kryzanowski & Skander Lazrak, 2011. "Informed traders of cross-listed shares trade more in the domestic market around earnings releases," Review of Quantitative Finance and Accounting, Springer, vol. 36(1), pages 1-31, January.
    15. Sankaraguruswamy, Srinivasan & Shen, Jianfeng & Yamada, Takeshi, 2013. "The relationship between the frequency of news release and the information asymmetry: The role of uninformed trading," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4134-4143.
    16. Zhao, Yan & Cheng, Lee-Young & Chang, Chong-Chuo & Ni, Cih-Ying, 2013. "Short sales, margin purchases and bid–ask spreads," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 199-220.
    17. Himmelmann, Achim & Schiereck, Dirk, 2012. "Drug approval decisions: A note on stock liquidity effects," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 640-652.
    18. T. Clifton Green, 2004. "Economic News and the Impact of Trading on Bond Prices," Journal of Finance, American Finance Association, vol. 59(3), pages 1201-1234, 06.
    19. Ali R. Almutairi & Kimberly A. Dunn & Terrance Skantz, 2009. "Auditor tenure, auditor specialization, and information asymmetry," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(7), pages 600-623, August.
    20. Baruch, Shmuel, 2002. "Insider trading and risk aversion," Journal of Financial Markets, Elsevier, vol. 5(4), pages 451-464, October.

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