The Cross Section of Jumps around Earnings Announcements

Abstract

Jump dynamics vary greatly across stocks. However, little is known about the causes of such variations and their associations to various firm characteristics. Controlling for information shocks from quarterly earnings announcements, we examine cross-sectional determinants of jumps in stock prices and nd that small, illiquid, and growth firms with high trading volume, high turnover, and low return volatility are more susceptible to jumps. Moreover, the magnitude of jumps decreases with firm size, liquidity, return volatility, and book-to-market ratio, but increases with pre-announcement trading volume and turnover. The results are robust to alternative model specifications and estimation methods.

Keywords: Standardized unexpected earnings, SUE, information shocks, jump clustering, instantaneous volatility