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Daily closing inside spreads and trading volumes around earnings announcements

Acker, Daniella, Stalker, Mathew and Tonks, Ian (2002) Daily closing inside spreads and trading volumes around earnings announcements. Financial Markets Group Discussion Papers (404). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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This paper examines the determinants of inside spreads and their behaviour around corporate earning announcement dates, for a sample of UK firms over the period 1986-94. The paper finds that closing daily inside spreads are affected by order processing costs (proxied by trading volumes), inventory control costs (trading volumes and return variability) and asymmetric information (unusually high trading volumes). Inside spreads start to narrow 15 days before an earnings announcement, and narrow further by the end of the announcement day. We also identify a puzzling phenomenon. There is only a ‘sluggish’ recovery of spreads after the announcement: inside spreads continue to remain at relatively narrow levels, and take up to 90 days to recover to their pre-announcement width.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2002 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
JEL classification: M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing
G - Financial Economics > G1 - General Financial Markets
Date Deposited: 19 Aug 2009 11:45
Last Modified: 30 Mar 2024 08:33

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