IDEAS home Printed from https://ideas.repec.org/p/ivi/wpasec/2005-16.html
   My bibliography  Save this paper

Liquidity And Information Around Annual Earnings Announcements: An Intraday Analysis Of The Spanish Stock Market

Author

Listed:
  • David Abad

    () (Universidad de Alicante)

  • José Yagüe

    () (Universidad de Murcia)

  • Sonia Sanabria

    () (Universidad de Alicante)

Abstract

This paper analyses the intraday reaction of the Spanish market to annual earnings announcements. Specifically, we examine the levels of stock liquidity, trading activity, volatility, and asymmetric information, as well as the order placement strategy around earnings disclosures. We also analyse the differences in the market reaction to announcements made during trading and non-trading hours. We find that stock liquidity and trading activity significantly improves after the announcement, although we do not find a significant reduction in the level of asymmetric information. Our results indicate that the stock market reaction differs according to the timing of the announcement. For overnight announcements, where investors have time to evaluate the earnings news before the market opens, the improvement in liquidity is immediate, caused by higher trading activity and less asymmetric information. On the contrary, for earnings announcements released when the market is open, the significant improvement in stock liquidity is observed after about one and a half hours of trading. The latter possibly occurs once informational advantages of investors who have superior information-processing abilities disappear, and therefore the level of asymmetric information decreases. The different reaction of the market to overnight and to daytime disclosures could explain the fact that Spanish firms prefer to release the announcement in trading (non-trading) hours when actual earnings are lower (higher) than forecast earnings. En este trabajo analizamos la reacción intradía del mercado español ante el anuncio del beneficio anual. En concreto, se examinan los niveles de liquidez, actividad negociadora, volatilidad, asimetría informativa y las estrategias de introducción de órdenes en un breve intervalo de tiempo alrededor del anuncio. También se analiza la respuesta del mercado en función del momento en que se produce el anuncio: fuera o dentro de la sesión. Nuestros resultados muestran una mejora generalizada de la liquidez y la actividad después del anuncio, aunque no se observa una reducción significativa del nivel de asimetría informativa. Sin embargo, la reacción del mercado difiere atendiendo al momento del anuncio. En los anuncios que se realizan con el mercado cerrado, donde los agentes disponen de más tiempo para procesar la información antes de que el mercado abra, la mejora en la liquidez es inmediata, no sólo impulsada por la mayor actividad, sino también por un menor nivel de asimetría informativa. Por su parte, en los anuncios que tienen lugar con el mercado abierto, la mejora en liquidez se produce con retraso, aproximadamente hora y media después del anuncio, posiblemente una vez que desaparecen las ventajas informativas de aquellos agentes más diestros en la interpretación de la nueva información y, por tanto, cuando disminuye el nivel de asimetría informativa. Esta diferente respuesta del mercado ante los anuncios con el mercado abierto y cerrado podría justificar el hecho de que las empresas prefieran anunciar sus beneficios dentro (fuera) de la sesión cuando estos son peores (mejores) de lo esperado.

Suggested Citation

  • David Abad & José Yagüe & Sonia Sanabria, 2005. "Liquidity And Information Around Annual Earnings Announcements: An Intraday Analysis Of The Spanish Stock Market," Working Papers. Serie EC 2005-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasec:2005-16
    as

    Download full text from publisher

    File URL: http://www.ivie.es/downloads/docs/wpasec/wpasec-2005-16.pdf
    File Function: Fisrt version / Primera version, 2005
    Download Restriction: no

    References listed on IDEAS

    as
    1. Griffiths, Mark D. & Smith, Brian F. & Turnbull, D. Alasdair S. & White, Robert W., 2000. "The costs and determinants of order aggressiveness," Journal of Financial Economics, Elsevier, vol. 56(1), pages 65-88, April.
    2. Woodruff, Catherine S & Senchack, A J, Jr, 1988. " Intradaily Price-Volume Adjustments of NYSE Stocks to Unexpected Earnings," Journal of Finance, American Finance Association, vol. 43(2), pages 467-491, June.
    3. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
    4. Yohn, Teri Lombardi, 1998. "Information Asymmetry around Earnings Announcements," Review of Quantitative Finance and Accounting, Springer, vol. 11(2), pages 165-182, September.
    5. Maria Jose Arcas Pellicer & William Page Rees, 1999. "Regularities in the equity price response to earnings announcements in Spain," European Accounting Review, Taylor & Francis Journals, vol. 8(4), pages 585-607.
    6. Daniella Acker & Mathew Stalker & Ian Tonks, 2002. "Daily Closing Inside Spreads and Trading Volumes Around Earnings Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(9&10), pages 1149-1179.
    7. Diamond, Douglas W, 1985. " Optimal Release of Information by Firms," Journal of Finance, American Finance Association, vol. 40(4), pages 1071-1094, September.
    8. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August.
    9. PASCUAL, Roberto & VEREDAS, David, 2004. "What pieces of limit order book information are informative ?," CORE Discussion Papers 2004033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. repec:bla:joares:v:29:y:1991:i:2:p:302-321 is not listed on IDEAS
    11. Handa, Puneet & Schwartz, Robert A, 1996. " Limit Order Trading," Journal of Finance, American Finance Association, vol. 51(5), pages 1835-1861, December.
    12. Demski, Joel S. & Feltham, Gerald A., 1994. "Market response to financial reports," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 3-40, January.
    13. Ranaldo, Angelo, 2004. "Order aggressiveness in limit order book markets," Journal of Financial Markets, Elsevier, vol. 7(1), pages 53-74, January.
    14. Gennotte, Gerard & Trueman, Brett, 1996. "The Strategic Timing of Corporate Disclosures," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 665-690.
    15. Foucault, Thierry, 1999. "Order flow composition and trading costs in a dynamic limit order market1," Journal of Financial Markets, Elsevier, vol. 2(2), pages 99-134, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Anuncios de resultados; liquidez; actividad negociadora; volatilidad; asimetría informativa Earnings announcements; liquidity; trading activity; volatility; information asymmetry;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ivi:wpasec:2005-16. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Departamento de Edición). General contact details of provider: http://edirc.repec.org/data/ievages.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.