SPREADS, DEPTHS, AND THE IMPACT OF EARNINGS INFORMATION - AN INTRADAYANALYSIS

For a sample of NYSE firms, we show that wide spreads are accompanied by low depths, and that spreads widen and depths fall in response to h igher volume Spreads widen and depths fall in anticipation of earnings announcements; these effects are more pronounced for announcements wi th larger subsequent price changes. Spreads are also wider following e arnings announcements, but this effect dissipates quickly after contro lling for volume. Collectively, our results suggest liquidity provider s are sensitive to changes in information asymmetry risk and use both spreads and depths to actively manage this risk.