Kim Christensen
Aarhus University - CREATES
Allan Timmermann
University of California, San Diego (UCSD) - Rady School of Management
Bezirgen Veliyev
Aarhus University
Download the latest version on SSRN.
Abstract
Corporate earnings announcements unpack large bundles of information that should, if markets are efficient, almost surely trigger jumps in stock prices immediately after the news release. Testing this implication is difficult in practice because most earnings announcements occur in the after-hours market where prices are contaminated by high levels of microstructure noise. The authors develop a new noise-robust jump test statistic and demonstrate that stock prices almost always jump immediately after earnings announcements. Finally, the study develops a trading based approach that allows the authors to estimate exactly how long it takes for markets to incorporate earnings news and quantify the importance of transaction costs.
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