Allan Timmermann (UCSD) : Warp Speed Price Moves

Allan Timmermann : Warp Speed Price Moves

Jumps after Earnings Announcements

Authors: Kim Christensen, Allan Timmermann and Bezirgen Veliyev

Abstract: Corporate earnings announcements unpack large bundles of information that should, if markets are efficient, almost surely trigger jumps in stock prices immediately after the news release. Testing this implication is difficult in practice because most earnings announcements occur in the after-hours market where prices are contaminated by high levels of microstructure noise. We develop a new noise-robust jump test statistic and demonstrate that stock prices almost always jump immediately after earnings announcements. Finally, we develop a trading-based approach that allows us to estimate exactly how long it takes for markets to incorporate earnings news and quantify the importance of transaction costs.

Keywords: after-hours trading; earnings announcements; jump testing; high-frequency data; market efficiency; price discovery

Bio: Allan Timmermann is a Distinguished Professor at UCSD and holds the Dr. Harry M. Markowitz Endowed Chair in Finance and Investing. His research uses a mix of economic theory, data analytics, and econometric techniques to understand and predict the behavior of investors and prices in financial markets. His publications address topics such as whether financial returns are predictable and its implications for investors’ portfolio strategies, whether risk premia have vanished, whether mutual funds and pension funds add value through their investment decisions, and whether “star” fund managers exist. Timmermann has developed new statistical methods in areas such as forecasting under structural breaks, forecast combinations, Bayesian forecasting methods, and identification of luck versus skill in economic forecasting. He serves as the managing Co-editor of the Journal of Financial Econometrics and as an Associate Editor of leading journals in finance and econometrics including the Journal of Financial Economics, Review of Asset Pricing, Journal of Business and Economic Statistics, Journal of Economic Dynamics and Control, Journal of Applied Econometrics, Econometrics Journal, Journal of Asset Management, and Journal of Forecasting. Timmermann earned his Ph.D. from the University of Cambridge, a masters degree from London School of Economics and a Cand. Polit degree from University of Copenhagen.

Link to paper