TY - JOUR
T1 - An empirical analysis of algorithmic trading around earnings announcements
AU - Frino, Alex
AU - Prodromou, Tina
AU - Wang, George H K
AU - Westerholm, P. Joakim
AU - Zheng, Hui
PY - 2017
Y1 - 2017
N2 - This study examines the impact of corporate earnings announcements on trading activity and speed of price adjustment, analyzing algorithmic and non-algorithmic trades during the immediate period pre- and post-corporate earnings announcements. We confirm that algorithms react faster and more correctly to announcements than non-algorithmic traders. During the initial surge in trading activity in the first 90. s after the announcement, algorithms time their trades better than non-algorithmic traders, hence algorithms tend to be profitable, while non-algorithmic traders make losing trades over the same time period. During the pre-announcement period, non-algorithmic volume imbalance leads algorithmic volume imbalance, however, in the post announcement period, the direction of the lead-lag association is exactly reversed. Our results suggest that as algorithms are the fastest traders, their trading accelerates the information incorporation process.
AB - This study examines the impact of corporate earnings announcements on trading activity and speed of price adjustment, analyzing algorithmic and non-algorithmic trades during the immediate period pre- and post-corporate earnings announcements. We confirm that algorithms react faster and more correctly to announcements than non-algorithmic traders. During the initial surge in trading activity in the first 90. s after the announcement, algorithms time their trades better than non-algorithmic traders, hence algorithms tend to be profitable, while non-algorithmic traders make losing trades over the same time period. During the pre-announcement period, non-algorithmic volume imbalance leads algorithmic volume imbalance, however, in the post announcement period, the direction of the lead-lag association is exactly reversed. Our results suggest that as algorithms are the fastest traders, their trading accelerates the information incorporation process.
KW - Algorithmic trading
KW - Earnings announcements
KW - Market efficiency
UR - http://www.scopus.com/inward/record.url?scp=85008250437&partnerID=8YFLogxK
U2 - 10.1016/j.pacfin.2016.05.008
DO - 10.1016/j.pacfin.2016.05.008
M3 - Article
AN - SCOPUS:85008250437
SN - 0927-538X
VL - 45
SP - 34
EP - 51
JO - Pacific-Basin Finance Journal
JF - Pacific-Basin Finance Journal
ER -