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.

Does Disagreement Facilitate Informed Trading? Evidence from Activist Investors

We study the effect of investor disagreement on informed trading by activist investors using high-frequency disagreement data derived from the investor social network StockTwits. Greater investor disagreement leads to more trading in the subsequent day by privately-informed activists. Disagreement leads to higher prices and improvements in measured liquidity, but these observed valuation and market liquidity differences do not explain the increase in activist trading. Instead, investor disagreement affects activist trading primarily by facilitating trading by non-activist investors. These findings suggest that investor disagreement not only affects trading by uninformed investors, but also facilitates trading by informed market participants who often take actions aimed at changing corporate policies.

Asymmetric Timeliness and the Resolution of Investor Disagreement and Uncertainty at Earnings Announcements

ABSTRACT This study finds that greater asymmetric timeliness of earnings in reflecting good and bad news is associated with slower resolution of investor disagreement and uncertainty at earnings announcements. These findings indicate that a potential cost of asymmetric timeliness is added complexity from requiring investors to disaggregate earnings into good and bad news components to assess the implications of the earnings announcement for their investment decisions. Such a disaggregation impedes the speed with which investor disagreement and uncertainty resolve. The findings indicate that asymmetric timeliness also delays price discovery at earnings announcements. We also find a positive relation between asymmetric timeliness and stock returns during the earnings announcement period after the initial price reaction to the announcement, which is consistent with resolution of valuation uncertainty. However, we do not find clear evidence of more net stock purchases during this period by insiders of firms with greater asymmetric timeliness. JEL Classifications: M41; G14.

Mutual Fund Performance Evaluation and Best Clienteles

This paper investigates investor disagreement and clientele effects in performance evaluation by developing a measure that considers the best potential clienteles of mutual funds. In an incomplete market under law-of-one-price (LOP) and no-good-deal conditions, we obtain an upper bound on admissible performance measures that identifies the most favorable alpha. Empirically, we find that a reasonable investor disagreement leads to generally positive performance for the best clienteles. Performance disagreement by investors can be significant enough to change the average evaluation of mutual funds from negative to positive, depending on the clienteles.