News-driven return reversals: Liquidity provision ahead of earnings announcements
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So_News-driven return.pdf
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723.29 KB
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Author(s)
So, Eric
Wang, Sean Yixiang
Date Issued
October 2018
Journal
Journal of Financial Economics
Publisher
Elsevier BV
Citation
So, Eric C., and Sean Wang. “News-Driven Return Reversals: Liquidity Provision Ahead of Earnings Announcements.” Journal of Financial Economics 114, no. 1 (October 2014): 20–35.
Version
Author's final manuscript
Abstract
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.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
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DOI of Published Version
https://doi.org/10.1016/J.JFINECO.2014.06.009
