Liquidity and information around annual earnings announcements: an intraday analysis of the spanish stock market

Zusammenfassung

This paper analyses the intraday reaction of the Spanish market to annual earnings announcements. Specifically, we examine the levels of stock liquidity, trading activity, volatility, and asymmetric information, as well as the order placement strategy around earnings disclosures. We also analyse the differences in the market reaction to announcements made during trading and non-trading hours. We find that stock liquidity and trading activity significantly improves after the announcement, although we do not find a significant reduction in the level of asymmetric information. Our results indicate that the stock market reaction differs according to the timing of the announcement. For overnight announcements, where investors have time to evaluate the earnings news before the market opens, the improvement in liquidity is immediate, caused by higher trading activity and less asymmetric information. On the contrary, for earnings announcements released when the market is open, the significant improvement in stock liquidity is observed after about one and a half hours of trading. The latter possibly occurs once informational advantages of investors who have superior information-processing abilities disappear, and therefore the level of asymmetric information decreases. The different reaction of the market to overnight and to daytime disclosures could explain the fact that Spanish firms prefer to release the announcement in trading (non-trading) hours when actual earnings are lower (higher) than forecast earnings.