Early Movers Advantage? Evidence from Short Selling During After Hours on Earnings Announcement Days PDF Download

Author: Archana Jain
Publisher:
ISBN:
Category :
Languages : en
Pages : 46

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Book Description
We examine short sellers' after-hours trading (AHT) following quarterly earnings announcements released outside of the normal trading hours. Our innovation is to use the actual short trades immediately after the announcements. We find that on these earnings announcement days, there is significant shorting activity in AHT relative to shorting activity both during AHT on non-announcements days as well as during regular trading sessions around announcements. Short sellers who trade after-hours on announcement days earn an excess return of 0.82 percent and 1.40 percent during before-market-open (BMO) and after-market-close sessions (AMC), respectively. The magnitude of these returns increases to 1.48 (3.92) percent for BMO (AMC) earnings announcements with negative surprise. We find that the reactive short selling during AHT has information in predicting future returns. Short-sellers' trades have no predictive power if they wait for the market to open to trade during regular hours. In addition, we find that the weighted price contribution during AHT increases with an increase in after-hours short selling. Overall, our results suggest that short sellers in AHT are informed. Our findings remain robust using alternative holding periods and after controlling for macroeconomic news announcements during BMO sessions.

Author: Lin Zheng
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Book Description
In this dissertation I aim at improving the understanding of the informativeness of short-selling in the context of the motivation, the impact on future stock returns, and the relation with market efficiencies. In Chapter 1, I study short sellers' reactions after quarterly earnings announcements as well as the associations between short sales and post announcement stock returns. Short sales increase immediately after both negative and positive earnings surprises. After positive earnings surprises, short sellers appear to act as contrarians, and trade against stock price overreaction, thereby inducing price reversal in the long run. After negative earnings surprises, short sellers act as momentum traders, and trade with post earnings announcement drift. However, they are not able to fully arbitrage away the downside post earnings announcement drift. The short sellers' different reactions at subsequent surprises in a series of same-sign earnings surprises implies that short sellers exploit the consequences of other investors' behavioral biases. The results highlight the motivations and impacts for short sales after earnings announcements. In Chapter 2, I investigate the informativeness of short-selling by combining Probability of Information-based Trading measure and short sales transaction data. Short sales depress stock returns in the short run, regardless of the information asymmetry level. However, short sales can not predict future stock return in the long run if information asymmetry levels are low. Large size short sales are the most informed. When short sales constraints are more binding, short-selling is more informed, especially for the stocks with high information asymmetry levels. In Chapter 3, I examine short sales prior to merger and acquisition announcements for acquiring firms. Short-selling increases prior to stock-financed not cash-financed mergers and acquisitions. Pre-announcement abnormal short-selling is negatively related to post-announcement stock returns. Short sellers are informed of the method of payment, but not the outcome. The results also indicate that short-sellers are more active in stocks with larger firm size, lower book-to-market ratio, and higher liquidity.

Author: Lynn L. Rees
Publisher:
ISBN:
Category :
Languages : en
Pages : 47

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Book Description
We investigate the relation between media coverage and the trading behavior of short sellers around earnings announcements, an event which garners significant market attention. Prior research finds conflicting evidence on the role of the media in the price discovery process. We find that short sellers increase their activity in line with the tone of media coverage around earnings announcements, after controlling for earnings news and other variables that affect relative levels of short selling. This evidence is consistent with media coverage disseminating incremental value relevant information to sophisticated capital market traders. Furthermore, we show that information in the media successfully forecasts earnings information in the days leading up to the earnings announcement, and that short sellers trade in a manner consistent with information provided in media coverage preceding the earnings announcement. Our findings are consistent with the media facilitating the price discovery process around the release of earnings.

Author: John Shon
Publisher: FT Press
ISBN: 0132615851
Category : Business & Economics
Languages : en
Pages : 225

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Book Description
Profit from earnings announcements, by taking targeted, short-term option positions explicitly timed to exploit them! Based on rigorous research and huge data sets, this book identifies the specific earnings-announcement trades most likely to yield profits, and teaches how to make these trades—in plain English, with real examples! Trading on Corporate Earnings News is the first practical, hands-on guide to profiting from earnings announcements. Writing for investors and traders at all experience levels, the authors show how to take targeted, short-term option positions that are explicitly timed to exploit the information in companies’ quarterly earnings announcements. They first present powerful findings of cutting-edge studies that have examined market reactions to quarterly earnings announcements, regularities of earnings surprises, and option trading around corporate events. Drawing on enormous data sets, they identify the types of earnings-announcement trades most likely to yield profits, based on the predictable impacts of variables such as firm size, visibility, past performance, analyst coverage, forecast dispersion, volatility, and the impact of restructurings and acquisitions. Next, they provide real examples of individual stocks–and, in some cases, conduct large sample tests–to guide investors in taking advantage of these documented regularities. Finally, they discuss crucial nuances and pitfalls that can powerfully impact performance.

Author: Christine X. Jiang
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
We study after-hours trading (AHT), price contributions, and price discovery following quarterly earnings announcements released outside of the normal trading hours. For Standard & Poor's (S&P) 500 index stocks from 2004-2008, AHT is heightened on announcement days. A significant portion of the price change and price discovery occurs immediately after the earnings releases. Prices in AHT show a large degree of informational efficiency, further demonstrating the importance of price discovery in AHT. We also provide evidence suggesting that firms prefer after-hours earnings announcements, as trades are mainly from informed traders, and those trades are relied upon to convey information to the general public.

Author: Ye Wang
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
Since short sellers are considered sophisticated traders and respond to corporate news and public information in a timely manner, corporate earnings announcements containing new information can be used to update the beliefs of short sellers and affect their investment strategies. Abnormal market reactions to earnings surprises are traditionally considered due to market mispricing or investor overreaction to unexpected corporate news; however, such mispricing is also determined by the functioning of the market microstructure. This paper uses an innovative dataset that includes detailed short sales information and fails-to-deliver (FTDs) at the settlement dates for all stocks listed in the New York Stock Exchange and NASDAQ to provide empirical evidence that the FTDs arising from naked short selling contribute to this mispricing around earnings announcements. Furthermore, this paper provides empirical evidence that, even after new regulation for restricting naked short sales, such misbehavior still causes price distortion during negative corporate events. This work also identifies multiple factors that could influence the (naked) short sales constraints of trading securities. The results show that institutional ownership, insider sales, short interests, and trading volume in a dark pool are important factors in the (naked) short sales of underlying stocks.

Author: Chinmay Jain
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
There are four essays in this dissertation. The first essay provides a detailed historical account of the evolution of short selling regulations and trading practices during both normal and crises periods. The second essay focuses on short selling Rule 201. We are unable to document any clear benefits of SEC Rule 201 in ensuring fair valuations and price stability, promoting higher liquidity and execution quality, or preventing a sudden flash crash or prolonged market crises. In the third essay, we examine various short selling regulatory frameworks ranging from total bans on the one extreme to unrestricted free play on the other, with partly restrictive regimes (e.g. an uptick rule or the current quote based rule) in the middle. We conclude that a rule that takes into account a stock's previous day's closing price and applies to stocks with high level of short interest is more effective than the current regulation in balancing the price efficiency benefits of short selling with its panic mongering effects. In the fourth essay, we examine after-hours short selling following quarterly earnings announcements that are released outside of the normal trading hours. We find that short sellers who trade after-hours earn a profit of 2.03% when an earnings announcement with negative surprise occurs after the close of the market. We also find that the magnitude of weighted price contribution during after-hours period increases with the increase in magnitude of after-hours short selling.

Author: Lin Zheng
Publisher:
ISBN:
Category :
Languages : en
Pages : 36

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Book Description
Using intraday transactions data including short sales, I study short-selling around quarterly earnings announcements and linkages between short sales and post earnings announcement stock returns. Short sales increase immediately after both negative and positive earnings surprises. Furthermore, patterns in shorting at subsequent surprises in series of same-sign earnings surprises suggest that short sellers exploit the consequences of other investors' behavioral biases. The results highlight motivations for short sales after earnings announcements, and illustrate how short-selling contributes to market efficiency after positive (but not negative) earnings surprises.

Author: Roni Michaely
Publisher:
ISBN:
Category :
Languages : en
Pages : 51

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Book Description
Using combinations of weekdays and times of day (before, during, and after trading hours) of earnings announcements, we examine whether managers attempt to strategically time these announcements. We document that the worst earnings news is announced on Friday evening and find robust evidence that only Friday evening announcements represent managers' rational opportunistic behavior. Friday evening announcements are followed by insider trading in the direction of earnings news and the largest post-earnings announcement drift. Managers also attempt to reduce interaction with investors and hide more than just earnings news by announcing on Friday evening. We find that Friday evening announcements occur later in the evening than announcements on other evenings, firms have a reduced propensity to hold conference calls, and major firm restructuring events are relatively more likely to occur after Friday evening announcements.

Author: Henk Berkman
Publisher:
ISBN:
Category :
Languages : en
Pages : 39

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Book Description
Over the last 2 decades after-hours earnings announcements have become more prevalent, resulting in a shift in earnings-related price changes from the announcement date to the next trading day. We highlight three aspects relevant for event studies around earnings announcements. First, daily price changes and volume are significantly biased if event dates are not adjusted for after-hours announcements. Second, correct measurement of event day 0 significantly increases the power to detect abnormal returns Third, if event dates can not be adjusted for after-hours announcements, earnings announcement windows should include the day after the announcement (event day +1) to ensure price changes and volume in reaction to after-hours announcements are included. Furthermore, if event dates are not adjusted, the post-earnings announcement drift should not include the return on event day +1.