They thank Charles Lee and Linda Bamber for their helpful comments on a previous version of this paper. This paper originated from the second author's dissertation at the University of Michigan, Ann Arbor and a part of the work on the previous version was completed while the authors were on the faculty at Carlson School of Management, University of Minnesota. They also thank John McDermott and participants at the Eastern Finance Association Annual Meeting 2004 for their comments. They gratefully acknowledge several valuable comments made by an anonymous JBFA referee during the preparation of this draft. The views expressed herein are those of the authors and do not in any way represent the views of their organization or their assignees. Neither UBS, AG nor ITG Inc. and/or any of their affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this material. All remaining errors are the authors' responsibility. The information contained herein is for informational purposes only. Nothing herein is investment advice as defined by the Investment Advisers Act of 1940. ITG Inc. does not guarantee its accuracy or completeness and ITG Inc. does not make any warranties regarding results from its usage. This communication is neither an offer to sell nor a solicitation of an offer to buy any security or financial instrument in any jurisdiction where such offer or solicitation would be illegal.
Who Trades Around Earnings Announcements? Evidence from TORQ Data
Article first published online: 6 NOV 2006
Journal of Business Finance & Accounting
Volume 34, Issue 1-2, pages 269–291, January/March 2007
How to Cite
Dey, M. K. and Radhakrishna (Radha), B. (2007), Who Trades Around Earnings Announcements? Evidence from TORQ Data. Journal of Business Finance & Accounting, 34: 269–291. doi: 10.1111/j.1468-5957.2006.00650.x
- Issue published online: 6 NOV 2006
- Article first published online: 6 NOV 2006
- (Paper received June 2004, revised version accepted May 2006)
- individual and institutional investors;
- trading volume;
- earnings announcements;
- Monte-Carlo simulation;
- behavioral finance
Abstract: Using TORQ database we investigate the intra-day trading volume reactions to earnings announcements of five trader groups, individuals, institutions, exchange members, program traders, and specialists. The results of this study indicate that institutions are most active in the immediate aftermath of an announcement. Individual investors are slow at the beginning but accumulate heavy volume afterwards and exceed institutional trading volume. We find support for Harris and Raviv (1993) and Admati and Pfleiderer (1988), who respectively argue that divergence of opinion about a public information and portfolio rebalancing cause surges in pre- and post-announcement trading volume. Further we find evidence of swift and aggressive trading by informed and sophisticated institutions in the immediate aftermath of the announcement, and delayed, aggressive trading volume ‘overreaction’ by ‘slow’ and ‘overconfident’ individual investors as documented by Barber and Odean (2000 and 2002) and Daniel et al. (1998). NYSE specialists provide the bulk of the liquidity needs around earnings announcements.