The Differential Market Reaction to Pre-Open versus Post-Close Earnings Announcements

Last revised: July 21, 2021

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

Wall Street Horizon Abstract

The vast majority of U.S. publicly traded firms announce outside of regular trading hours, with 48% announcing in the pre-open and 52% in the post-close. The study uses Wall Street Horizon data to show that if investors require time to process earnings news, then the market reaction to pre-open earnings announcements will be slower due to less time to process earnings news before regular trading begins. The authors find that pre-open announcements lead to greater abnormal volatility, including delays in news, analyst forecast revisions, and EDGAR downloads persisting for 4 days after the announcement and a slower incorporation of earnings news into prices as compared to post-close announcements.

Further, the study finds that option and equity trading strategies based on pre-open versus post-close announcements yield significant excess returns, suggesting that options and equity traders do not exploit this predictable pattern of a slower market reaction to pre-open versus post-close announcements.

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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.