An Empirical Investigation of Equity Market Trade Patterns Surrounding Significant Information Releases

Abstract

In this study we examine the response of equity market participants to a wide variety of significant public announcements. Specifically, we examine total and directional trade patterns across 5 investor groups in the 10 trading days centered on the announcement. We utilize the TORQ database to identify the trades initiated by NYSE members other than specialists, individual traders, institutional traders, specialists, and residual trades. We explore different reactions to good news versus bad news disclosures, and examine the reaction to predictable disclosures, namely earnings and dividend announcements, versus more discretionary and less predictable announcements. We find little evidence of privately informed trade in anticipation of announcements concentrated within any investor group. Trading patterns subsequent to announcements are consistent with diversity of opinion in interpreting the announcement across investor groups. There is some evidence suggesting that discretionary, good news announcements are made in response to institutional investor sell pressure.

JEL Classification: G14, G12, G29, M41, M43