Individuals' Trading Prior to Earnings Announcements

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper investigates the relationship between individuals' net trading and stock price movements before and after annual earnings announcements for the Taiwan Stock Exchange. We conduct an event study on the effects of pre-event individual trade imbalances on pre- and post-announcement abnormal returns. With a unique and comprehensive dataset, we accurately classify executed orders by aggressiveness of order price. The evidence indicates that while individuals, as a group, are not informed about impending earnings announcements, individuals who place aggressive orders are informed as their net trading coincides with contemporaneous and future stock returns. Aggressive individuals lose their edge during the financial crisis. More importantly, the advantage (disadvantage) for individuals who adopt aggressive (passive) orders weakens when foreign institutions own concentrated equity in firms. We also find that net individual trading contains information about abnormal returns that either past returns or volume does not subsume. Controlling for past returns, trading volume and volatility, or using an alternative measure of net individual trading does not change our conclusions.

Original languageEnglish
Pages (from-to)1124-1156
Number of pages33
JournalJournal of Business Finance and Accounting
Volume41
Issue number9-10
DOIs
Publication statusPublished - 2014 Nov 1

Fingerprint

Earnings announcements
Abnormal returns
Event study
Disadvantage
Stock returns
Financial crisis
Trade imbalances
Preannouncements
Trading volume
Equity
Announcement
Taiwan Stock Exchange
Stock prices

Keywords

  • Abnormal returns
  • Aggressive orders
  • Earnings announcements
  • Informed trading
  • Ownership concentration

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance

Cite this

Individuals' Trading Prior to Earnings Announcements. / Tsai, Shih Chuan.

In: Journal of Business Finance and Accounting, Vol. 41, No. 9-10, 01.11.2014, p. 1124-1156.

Research output: Contribution to journalArticle

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