Abstract
We explore the impact of earnings announcements on equity markets, using intraday price data for the DJIA stocks. We find on a daily basis, an abnormally high volatility only within one day following the overnight announcement. On an intraday basis, a striking volatility spike stands out during the overnight period, implying that the earnings news is fully reflected in the opening price. The continued high volatility during the first several minutes of trading seems to be driven by noise traders, given the one-minute returns uncorrelated with the overnight return. Using the standardized earnings surprise (SES), we find the overnight return highly dependent on good and bad news and no relationship between the 9:30-9:31 return and news content. The evidence along with the CAAR patterns surrounding the earnings announcement confirms that the equity market is completely awake and busy in reflecting the new information in the opening trading price.
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