The Speed of the Market Reaction to Pre-Open versus Post-Close Earnings Announcements

Authors: Matthew R. Lyle, Christopher Rigsby, Andrew Stephan and Teri Lombardi Yohn

Wall Street Horizon Abstract
Approximately 95% of publicly traded firms announce earnings outside of regular trading hours, either pre- or post-market.  The authors examine whether the timing of the announcement affects how quickly equity investors process the earnings information, as proxied by volatility.  The study uses Wall Street Horizon data and finds that firms announcing earnings farther from regular trading hours and in the pre-open have higher abnormal volatility following the announcement relative to firms that announce in the post-close.  This volatility difference persists for at least three trading days following an earnings announcement. It cannot be explained by common determinants of volatility such as firm size, profitability, volume, earnings surprises, stock returns, or historical volatility, and is not driven by strategic announcement timing. The research suggests that option trading strategies based on pre-open versus post-close announcers yield economically large returns, whereas trading strategies using equities yield economically insignificant returns.

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Note:  While the academics listed made extensive use of Wall Street Horizon corporate events data, please note Wall Street Horizon does not sponsor academic research; all papers are conducted independently by the researchers and their teams at their respective organizations.