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Rev Fin 1993; 6:345-374
© 1993 the Society for Financial Studies

Article

Spreads, depths, and the impact of earnings information: an intraday analysis

CMC Lee1,z, B Mucklow2 and MJ Ready2
1 Department of Accounting, School of Business Administration, University of Michigan, Ann Arbor, MI 48109-1234, USA
2 University of Wisconsin, USA
z Corresponding author

Abstract

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 bigger volume. Spreads widen and depths fall in anticipation of earnings announcements; these effects are more pronounced for announcements with larger subsequent price changes. Spreads are also wider following earnings announcements, but this effect dissipates quickly after controlling for volume. Collectively, our results suggest liquidity providers are sensitive to changes in information asymmetry risk and use both spreads and depths to actively manage this risk.


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