Private Information and the Costs of Trading Around Quarterly Earnings Announcements

No one wants to trade those who have better information. In markets where trades have asymmetric information, however, both informed and uninformed trades must make strategic trading decisions. Because public announcements can affect the information asymmetry between traders, these strategic decisions are likely to be most important around public announcements. How concerned should uniformed trades be about the potential information asymmetry when trading around public announcements? Surprisingly, whether for large-block trades or for the entire order flow, there is no evidence that the uniformed can trade on more favorable terms by varying the timing of their trades in relation to a quarterly earnings announcement.

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