Rest in Peace Post-Earnings Announcement Drift

This paper revisits price formation following earnings announcements. In modern financial markets, stock prices fully reflect earnings surprises on the announcement date, leading to the disappearance of post-earnings announcement drifts (PEAD). For large stocks, PEAD have been non-existent since 2006 but has only disappeared recently for microcap stocks. PEAD remain a prevalent area of study in finance and accounting despite having largely disappeared. This paper concludes with a set of recommendations for researchers who conduct such studies to better assess the existence of PEAD and suggests future research avenues to examine price formation following earnings news.

Dark Market Share around Earnings Announcements and Speed of Resolution of Investor Disagreement

This study examines how the market share of dark venues changes at earnings announcements. Our analysis shows a statistically significant increase in dark market share in the weeks prior to, during, and following the earnings announcement. We also predict and find evidence that increases in dark market share around earnings announcements are higher for firms with high quality accounting information. In addition, we find a positive relation between the change in dark market share and the speed of resolution of investor disagreement-a key dimension of informational efficiency, which suggests that dark trading is associated with an improvement in market quality. How market fragmentation changes around news events, the role accounting information plays in market fragmentation, and how changes in market fragmentation relate to market quality can help provide insights to securities regulators.

Do the Securities Analysts Play the Role of Information Competition or Information Supplement? Empirical Analysis Based on Investor Sentiment (ID: SO-20-2446.R3)

The purpose of this article is to investigate the role of securities analysts in Chinese stock market. Taking the earnings announcements of listed companies, analysts’ earnings forecast and analysts’ recommendations in Chinese stock markets from 2014 to 2018 as the samples, this paper explores the influence mechanism of investor sentiment on the market reaction to announcements, and investigates the influence mechanism of investor sentiment on the role of securities analysts under the framework of behavioral finance theory. On the basis of theoretical analysis, this paper empirically tests the relationship between the information content of analysts’ reports and the information content of the earnings announcements from the perspective of behavioral finance, and discusses the role of securities analysts in the stock market. The results show that during the periods of high investor sentiment, securities analysts do not demonstrate the role of information competition or information supplement. On the other hand, during the periods of low investor sentiment, securities analysts play the role of information competition or information supplement. Furthermore, after excluding the investor sentiment component of the market reaction to announcements, securities analysts do not demonstrate the role of information competition, but play the role of information supplement. The findings of this study offer new insights into the role securities analysts play in Chinese stock market, which is conducive to improving the quality of analysts’ reports, thus enhancing the efficiency of the securities market.

Does mandatory corporate social responsibility disclosure affect share price responses to earnings announcements? Evidence from China

We utilize the mandatory corporate social responsibility (CSR) disclosure regulation in China as an exogenous shock to evaluate the impact of such disclosures on investors as end-users of accounting information based on the analysis of share price responses to earnings announcements. Specifically, we observe that firms with mandated CSR disclosure experience an increase in earnings response coefficient and a decrease in post-earnings announcement drift. Furthermore, these effects are greater among CSR-sensitive industries, state-owned enterprises, and lower accounting quality firms. Additional analysis also reveals that these effects vary by the quality of CSR disclosure and CSR performance. These findings suggest that CSR disclosure provides incremental information that are useful for investors to assess firms’ future prospects and uncertainties. A broader implication of our study is that mandating CSR disclosure could improve market information efficiency and benefit outside investors.

Dark Pool Trading and Information Acquisition

Theory suggests that dark pools may facilitate or discourage information acquisition. We find that more dark pool trading leads to greater information acquisition. We measure information acquisition using stock price dynamics around earnings announcements. To overcome endogeneity concerns, we exploit a large exogenous decrease to dark pool trading that results from the implementation of the Security and Exchange Commission’s (SEC’s) Tick Size Pilot Program. The results cannot be explained by lit venue liquidity, algorithmic trading, or informational efficiency. A battery of additional tests, such as documenting a shift in SEC EDGAR searches, supports the information acquisition interpretation.