An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Kazuhisa Otogawa
Kobe University

Hiromi Wakabayashi
Tokyo International University

Abstract: By classifying a trade at the ask (bid) price as buyer- (seller-) initiated, this study in detail investigates the behavior in trading volume around earnings announcement date. Although both buyer- and seller-initiated trades significantly increase around earnings announcements, buying activities are stronger than selling activities, even if they are good or bad news. Next we divide our sample period into two sub-periods and compare trading activities around earnings announcements. The results indicate that both buying and selling activities around earnings announcements are significantly stronger in the latter period. As a result, significant order imbalance toward buyer-initiated trades becomes somewhat weaker in the good news announcements and remains unchanged in the bad news announcements. We interpret these findings as tentative evidence that rapidly increasing on-line trading by individual investors might not have a positive impact on the stock market efficiency.

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