The Impact of Earnings Announcements on the Permanent Price Effects of Block Trades

Abstract

This study examines the permanent price effects that accompany block trades before and after earnings announcements. Permanent price effhcts are determined by comparing prices on either side of block trades. This price change may be interpreted as a measure of the information asymmetry between privately informed traders and market makers.' We examine permanent price effects in the period surrounding earnings announcements to test the prediction that anticipated public announcements give rise to private information acquisition. Permanent price effects of block trades are analogous to bid/ask spreads in prices quoted for small trades. In testing for information asymmetries, confounding effects may occur due to expected increases in price volatility at the time of an earnings release. Block trade data are less