The signal quality of earnings announcements : evidence from an informed trading cartel
Abstract/Contents
- Abstract
- This study examines the revealed preference of informed traders to infer the extent to which earnings announcements are informative of subsequent stock price responses. From 2011 to 2015, a cartel of sophisticated traders illegally obtained early access to firm press releases prior to publication and traded over 1,000 earnings announcements. I study their constrained profit maximization: which earnings announcements they chose to trade vs. which ones they forwent trading. Consistent with theory, these traders targeted more liquid earnings announcements with larger subsequent stock price movement. Despite earning large profits overall, the informed traders enjoyed only mixed success in identifying the biggest profit opportunities. Controlling for liquidity differences, only 31% of their trades were in the most extreme announcement period return deciles. I model the informed traders' tradeoff between liquidity and expected returns. From this model, I recover an average signal-to-noise ratio of 0.4. I further explore two potential economic sources of this noise: (i) ambiguous market expectations of earnings announcements and (ii) heterogeneous interpretations of earnings information by the marginal investor. Empirically, I document that the informed traders avoided noisier earnings announcements as measured by both sources of noise
Description
| Type of resource | text |
|---|---|
| Form | electronic resource; remote; computer; online resource |
| Extent | 1 online resource |
| Place | California |
| Place | [Stanford, California] |
| Publisher | [Stanford University] |
| Copyright date | 2020; ©2020 |
| Publication date | 2020; 2020 |
| Issuance | monographic |
| Language | English |
Creators/Contributors
| Author | Xie, Lu |
|---|---|
| Degree supervisor | Piotroski, Joseph D. (Joseph David) |
| Thesis advisor | Piotroski, Joseph D. (Joseph David) |
| Thesis advisor | Lee, Charles M |
| Thesis advisor | McNichols, Maureen, 1953- |
| Degree committee member | Lee, Charles M |
| Degree committee member | McNichols, Maureen, 1953- |
| Associated with | Stanford University, Graduate School of Business. |
Subjects
| Genre | Theses |
|---|---|
| Genre | Text |
Bibliographic information
| Statement of responsibility | Chloe L. Xie |
|---|---|
| Note | Submitted to the Graduate School of Business |
| Thesis | Thesis Ph.D. Stanford University 2020 |
| Location | electronic resource |
Access conditions
- Copyright
- © 2020 by Lu Xie
- License
- This work is licensed under a Creative Commons Attribution Non Commercial 3.0 Unported license (CC BY-NC).
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