Information demand and net selling around earnings announcement

Previous literature has shown the effectiveness of information dissemination channels on reducing information asymmetry from the supply-side. This paper mainly focuses on investigating the effects of information diffusion from the demand-side, i.e., investors' voluntary demand for firm-specific information proxied by Baidu Search Volume Index. By taking the earnings announcement as an example for information asymmetry, we observe a net-selling behavior for investors during the pre-announcement periods that are closely related to changes of returns around the earnings announcements. More importantly, our empirical tests prove that the increased investors' information demands help to alleviate the net-selling phenomenon as well as its further effects on earnings announcements returns that are resulted from the high information asymmetry during pre-announcement periods. In that sense, we conclude that investors' information demand contributes to reducing information asymmetry by incorporating information into stock prices.

Automated summary

The study suggests that investors' demand for firm-specific information helps alleviate information asymmetry, particularly around earnings announcements. By increasing information demand, investors assist in incorporating information into stock prices, reducing the level of information asymmetry.