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

  • David Abad

    ()

    (Universidad de Alicante)

  • José Yagüe

    ()

    (Universidad de Murcia)

  • Sonia Sanabria

    ()

    (Universidad de Alicante)

Registered author(s):

    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.

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    File URL: http://www.ivie.es/downloads/docs/wpasec/wpasec-2005-16.pdf
    File Function: Fisrt version / Primera version, 2005
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    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie EC with number 2005-16.

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    Length: 39 pages
    Date of creation: Sep 2005
    Date of revision:
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasec:2005-16
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    1. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
    2. 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.
    3. 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).
    4. Handa, Puneet & Schwartz, Robert A, 1996. " Limit Order Trading," Journal of Finance, American Finance Association, vol. 51(5), pages 1835-61, December.
    5. Yohn, Teri Lombardi, 1998. " Information Asymmetry around Earnings Announcements," Review of Quantitative Finance and Accounting, Springer, vol. 11(2), pages 165-82, September.
    6. 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 467-91, June.
    7. 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.
    8. Ranaldo, Angelo, 2004. "Order aggressiveness in limit order book markets," Journal of Financial Markets, Elsevier, vol. 7(1), pages 53-74, January.
    9. 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.
    10. Gennotte, Gerard & Trueman, Brett, 1996. "The Strategic Timing of Corporate Disclosures," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 665-90.
    11. 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.
    12. 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.
    13. Diamond, Douglas W, 1985. " Optimal Release of Information by Firms," Journal of Finance, American Finance Association, vol. 40(4), pages 1071-94, September.
    14. 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.
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