The information content of annual earnings releases : a trading volume approach

This paper reports the results of an empirical examination of the relations between the volume of securities traded, the magnitude of "surprises" in annual earnings announcements, and firm size. Although early trading volume studies (e.g., Beaver [1968], Kiger [1972], and Foster [1973]) replicated basic information content studies, with findings similar to those based on security prices, we should not expect that security price and trading volume research will continue to yield identical results when more refined hypotheses are tested. Trading volume reflects investors' activity by summing all market trades, whereas security prices reflect an aggregation or averaging of investors' beliefs. As a result, we will on occasion observe differences between price and volume reactions to earnings announcements, as did Morse [1981]. This study extends the recent trend toward tests of more refined hypotheses by using a larger sample to examine the associations between unexpected earnings, firm size, and trading volume, and testing whether such associations can be generalized across fiscal year-end dates and stock exchange listing. My results show a continuous (positive) relationship between trading

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