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|Title:||The Speed of the Market Response to Earnings Announcements and the Bid-Ask Spread: An Empirical Study|
|Author(s):||Noland, Thomas Rodney|
|Doctoral Committee Chair(s):||Ziebart, David A.|
|Department / Program:||Accountancy|
|Degree Granting Institution:||University of Illinois at Urbana-Champaign|
|Subject(s):||Business Administration, Accounting
|Abstract:||It is hypothesized that cross-sectional differences in the speed of the market response to an earnings announcement are positively related to the precision of the information contained in the announcement. The bid-ask spread is used as a proxy for the precision of the information contained in the earnings announcement, since Glosten and Milgrom (1985) provides theoretical support for the use of the bid-ask spread as a proxy for precision.
Intervention analysis (Box and Tiao (1975)) is used in this study to estimate the speed of response. It provides several methodological advantages over methods used in previous studies. Capitalized equity value and average trading volume in the five-day trading period following the earnings announcement are included in the regression to improve experimental control.
The results of pooled absolute abnormal returns are consistent with the hypothesized relationship. The average returns for the firms in the quintile with the largest proportional bid-ask spreads appear to have the fastest decay pattern, while the average returns for the firms in the quintile with the smallest proportional bid-ask spreads appear to have the slowest decay pattern. However, the results do not represent a statistical test of the hypothesis.
Using individual-firm data, the null hypothesis can be rejected at a significance level of 10%, but the null hypothesis cannot be rejected at a significance level of 5%. The inconsistency between the results for the pooled data and the individual-firm data is most likely a reflection of the noisier return patterns found in the individual-firm data.
In an additional analysis, when the sign of the shift in the absolute returns series is ignored, the null hypothesis is not rejected, but a strong negative correlation between firm size and the speed of the market's response is observed.
Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1992.
|Date Available in IDEALS:||2014-12-17|