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Earnings Announcements: Good News for Institutional Investors and Short Sellers


  • We thank Dan Dhaliwal, Paul Koch, John Lee, Cameron Truong and an anonymous referee for their comments on this paper. McKenzie would like to acknowledge the financial support of grants from the ARC and the Australian Centre for Financial Studies in undertaking this research project.

Discipline of Finance, The University of Sydney Business School, The University of Sydney, NSW, 2006, Australia; Phone: +612 9114 0578; Fax: +612 9351 6461; E-mail: Also Centre for Financial Analysis and Policy, Judge Business School, Cambridge University, UK.


In this paper, we consider the trading behavior of institutional investors and short sellers around earnings announcements. The results suggest that institutional investors, and to a lesser extent short sellers, successfully anticipate earnings news. In the period immediately after the earnings announcement, both types of traders are active in the market and trade in response to the earnings announcement. In particular, short sellers are quick to increase their short positions when a company releases bad news. Institutional traders also trade in response to the news; however, they take longer to react.