Information Content of Earnings Announcements: Evidence from After-Hours Trading

Abstract

We study after-hours trading (AHT), price contributions, and price discovery following quarterly earnings announcements released outside of the normal trading hours. For Standard & Poor's (S&P) 500 index stocks from 2004-2008, AHT is heightened on announcement days. A significant portion of the price change and price discovery occurs immediately after the earnings releases. Prices in AHT show a large degree of informational efficiency, further demonstrating the importance of price discovery in AHT. We also provide evidence suggesting that firms prefer after-hours earnings announcements, as trades are mainly from informed traders, and those trades are relied upon to convey information to the general public.

The Effect of Earnings Announcement Timing on Liquidity

“…It is likely that noise trading is one of the causes of this increased AMC liquidity. Whereas Jiang et al (2012) find that AMC announcements lead to more price discovery during after-hours trading, we document that AMC announcements have a differential effect on liquidity when the market opens on the following day.…”

“…Since noise-trader behavior is a primary focus of our paper, we choose to examine trading activity during regular market hours in order to capture noise-trader effects. We suggest that our results complement those of Jiang et al (2012) since multiple factors may help to contribute to managers' decisions to announce AMC.…”

“…Jiang et al (2012) examine trading activity outside of regular market hours and find different levels of price discovery between AMC and BMO announcements. As the authors note, the amount of trading activity conducted outside of regular hours pales in comparison to the amount that occurs during normal market hours.…”

Do High Frequency Traders Care about Earnings Announcements? An Analysis of Trading Activity before, during, and after Regular Trading Hours

“…Michaely et al (2014) show that five percent of earnings are reported during RTHs in 2002, down sharply from the 45% of earnings announcements made during RTHs in the late 1990s. Jiang et al (2012) use this decline in RTH announcements to motivate a study about when investors trade (before the market opens or after the market closes) and how investors contribute to price discovery following earnings announcements. Jiang et al (2012) show that trading volume increases on announcement days, and also document a smaller average trade size during the before and after market trading sessions.…”

“…Current research on HFTs focuses primarily on regular trading hours (RTHs), but not on trading before the market opens or after the market closes. Jiang et al (2012) show that most earnings announcement are made after the market closes. In addition, they show a significant portion of the price change and price discovery occurs after earnings releases, both in the period prior to the market opening and in the after-hours trading sessions.…”