The Speed of Price Discovery: Trade Time vs Clock Time

Tue November 1, 2016

Shrihari Santosh, University of Maryland

April 2013, updated November 2016

Wall Street Horizon Abstract

Santosh finds that price discovery after an earnings announcement occurs quickly through trading, and is not simply based on elapsed time after the announcement. Using Wall Street Horizon earnings press release dates and times, recorded to the nearest second, Santosh reveals that for companies that report after the market close, typically more than 70% of the price impact occurs before the market opening the following day.

The author concludes that investors observe prices and shares traded in “trading time,” regardless of how long it takes in “clock time.” As a result, the benefit to investors to monitor earning announcements dates and times accurately and timely can be significant.

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