Aurora Borealis
1 March 1982 Financial Analysts Journal Volume 38, Issue 2

Wall Street Journal Announcements and the Securities Markets

  1. Dale Morse

Previous studies have indicated that company announcements can affect both the price of a company’s securities and the trading volume in those securities. William Beaver, for example, found that unusual price changes and trading volume occur during the week a company releases its annual report. Other studies have found similar effects surrounding quarterly earnings release dates and announcements by company officials of quarterly earnings estimates. These studies, however, have focused on accounting reports and on units of time of three days or longer.

Other types of information available to investors may be important to their valuation of securities. For instance, the Wall Street Journal routinely reports company announcements of dividend increases, large product sales, earnings forecasts, acquisitions, construction projects, stock splits, labor strikes and quarterly earnings figures. Do these events affect the price, hence volatility, of companies’ securities?

For a sample of 50 companies traded on the New York Stock Exchange or over-the-counter, the author examined price behavior and trading volume in the five days before, the day of and the five days following announcements of each of these events. The absolute size of (residual) returns surrounding announcements dates, and the volume of trading, should tell us something about the importance of the information conveyed, while an examination of the residual returns themselves can indicate whether investors view the information as favorable or unfavorable. Furthermore, because the author focuses on daily returns and trading volume, some conclusions can be drawn about how quickly the information is impounded in security prices.

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