News-driven return reversals: Liquidity provision ahead of earnings announcements

• 成果类型: Article
• 署名作者: So, Eric C.; Wang, Sean
• 署名单位: Massachusetts Institute of Technology (MIT); University of North Carolina; University of North Carolina Chapel Hill
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2014.06.009
• 发表日期: 2014
• 页码: 20-35
• 关键词: Return reversals; liquidity provision; Inventory risks; Return predictability

摘要

This study documents a six-fold increase in short-term return reversals during earnings announcements relative to non-announcement periods. Following prior research, we use reversals as a proxy for expected returns market makers demand for providing liquidity. Our findings highlight significant time-series variation in the magnitude of short-term return reversals and suggest that market makers demand higher expected returns prior to earnings announcements because of increased inventory risks that stem from holding net positions through the release of anticipated earnings news. Collectively, our findings suggest that uncertainty regarding anticipated information events elicits predictable increases in the compensation demanded for providing liquidity and that these increases significantly affect the dynamics and information content of market prices. (C) 2014 Elsevier B.V. All rights reserved.