Differential Price and Volume Reactions to Accounting Earnings Announcements

Prior research acknowledges that an earnings announcement may generate heavy trading but minimal price changes, and vice versa. Surprisingly, there is little empirical evidence regarding the extent of such occurrences. This study investigates the frequency with which earnings announcements generate differen tial price and volume reactions, and then assesses whether these differential reactions are associated with announcement-specific characteristics. Although there is a positive relation between the magnitudes of price and volume reactions (on average), nearly a quarter of the announcements generate price and volume reactions of very different relative magnitudes. Additional empirical evidence is consistent with the notion that trading volume is likely to be high relative to price reaction when an earnings announcement generates differential belief revisions among investors, but a small average aggregate market belief revision.