News-driven return reversals: Liquidity provision ahead of earnings announcements
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...
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| Format: | Article |
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Elsevier BV
2018
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| Online Access: | http://hdl.handle.net/1721.1/119665 https://orcid.org/0000-0002-9345-2123 |
| _version_ | 1826192115613302784 |
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| author | So, Eric Wang, Sean Yixiang |
| author2 | Massachusetts Institute of Technology. Department of Economics |
| author_facet | Massachusetts Institute of Technology. Department of Economics So, Eric Wang, Sean Yixiang |
| author_sort | So, Eric |
| collection | MIT |
| description | 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. |
| first_indexed | 2024-09-23T09:06:30Z |
| format | Article |
| id | mit-1721.1/119665 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T09:06:30Z |
| publishDate | 2018 |
| publisher | Elsevier BV |
| record_format | dspace |
| spelling | mit-1721.1/1196652022-09-30T13:29:02Z News-driven return reversals: Liquidity provision ahead of earnings announcements So, Eric Wang, Sean Yixiang Massachusetts Institute of Technology. Department of Economics Sloan School of Management So, Eric Wang, Sean Yixiang 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. 2018-12-17T18:42:27Z 2018-12-17T18:42:27Z 2018-10 2018-12-04T15:28:36Z Article http://purl.org/eprint/type/JournalArticle 0304405X http://hdl.handle.net/1721.1/119665 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. https://orcid.org/0000-0002-9345-2123 http://dx.doi.org/10.1016/J.JFINECO.2014.06.009 Journal of Financial Economics Creative Commons Attribution-NonCommercial-NoDerivs License http://creativecommons.org/licenses/by-nc-nd/4.0/ application/pdf Elsevier BV SSRN |
| spellingShingle | So, Eric Wang, Sean Yixiang News-driven return reversals: Liquidity provision ahead of earnings announcements |
| title | News-driven return reversals: Liquidity provision ahead of earnings announcements |
| title_full | News-driven return reversals: Liquidity provision ahead of earnings announcements |
| title_fullStr | News-driven return reversals: Liquidity provision ahead of earnings announcements |
| title_full_unstemmed | News-driven return reversals: Liquidity provision ahead of earnings announcements |
| title_short | News-driven return reversals: Liquidity provision ahead of earnings announcements |
| title_sort | news driven return reversals liquidity provision ahead of earnings announcements |
| url | http://hdl.handle.net/1721.1/119665 https://orcid.org/0000-0002-9345-2123 |
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