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

Published online by Cambridge University Press:  04 October 2012

Christine X. Jiang
Affiliation:
cjiang@memphis.edu
Tanakorn Likitapiwat
Affiliation:
tanakorn.l@chula.ac.th, Faculty of Commerce and Accountancy, Chulalongkorn University, Bangkok, Thailand
Thomas H. McInish
Affiliation:
tmcinish@memphis.edu, Fogelman College of Business and Economics, University of Memphis, Memphis, TN 38152

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.

Type
Research Articles
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

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