Informed Trading, Earnings Surprises, and Stock Returns

AbstractWe test the implications of anchoring bias associated with forecast earnings per share (FEPS) for forecast errors, earnings surprises, stock returns, and stock splits. We find that analysts make optimistic (pessimistic) forecasts when a firm’s FEPS is lower (higher) than the industry median. Further, firms with FEPS greater (lower) than the industry median experience abnormally high (low) future stock returns, particularly around subsequent earnings announcement dates. These firms are also more likely to engage in stock splits. Finally, split firms experience more positive forecast revisions, more negative forecast errors, and more negative earnings surprises after stock splits.

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Liquidity Dynamics and Cross-Autocorrelations

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109011000081 ◽

2011 ◽

Vol 46 (3) ◽

pp. 709-736 ◽

Cited By ~ 30

Author(s):

Tarun Chordia ◽

Asani Sarkar ◽

Avanidhar Subrahmanyam

Keyword(s):

Simple Model ◽

Information Transmission ◽

Stock Returns ◽

Informed Trading ◽

Information Asymmetries ◽

Small Stock

AbstractThis paper examines the relation between information transmission and cross-autocorrelations. We present a simple model, where informed trading is transmitted from large to small stocks with a lag. In equilibrium, large stock illiquidity induced by informed trading portends stronger cross-autocorrelations. Empirically, we find that the lead-lag relation increases with lagged large stock illiquidity. Further, the lead from large stock order flows to small stock returns is stronger when large stock spreads are higher. In addition, this lead-lag relation is stronger before macro announcements (when information-based trading is more likely) and weaker afterward (when information asymmetries are lower).

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Innovation and Informed Trading: Evidence from Industry ETFs

Review of Financial Studies ◽

10.1093/rfs/hhaa077 ◽

2020 ◽

Cited By ~ 4

Author(s):

Shiyang Huang ◽

Maureen O’Hara ◽

Zhuo Zhong

Keyword(s):

Market Efficiency ◽

Hedge Fund ◽

Informed Trading ◽

Risk Exposure ◽

Exchange Traded Funds ◽

Post Earnings Announcement Drift ◽

Earnings Surprises ◽

Short Interest ◽

The Impact ◽

Industry Risk

Abstract We empirically examine the impact of industry exchange-traded funds (IETFs) on informed trading and market efficiency. We find that IETF short interest spikes simultaneously with hedge fund holdings on the member stock before positive earnings surprises, reflecting long-the-stock/short-the-ETF activity. This pattern is stronger among stocks with high industry risk exposure. A difference-in-difference analysis on the ETF inception event shows that IETFs reduce post-earnings-announcement drift more among stocks with high industry risk exposure, suggesting that IETFs improve market efficiency. We also find that the short interest ratio of IETFs positively predicts IETF returns, consistent with the hedging role of IETFs.

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