Liquidity and Information Asymmetry Around Preliminary Final Reports

Abstract

This thesis seeks to examine changes in liquidity and information asymmetry around earnings and dividend announcements, using evidence from the Australian market. Unlike previous studies conducted, this thesis examines a market without the presence of official market makers. In Australia earnings and dividend announcements are released simultaneously in companies’ Preliminary Final Reports (PFR). Consequently these announcements are the focus of this thesis. Market participants are interested in liquidity and information asymmetry around PFR announcements to determine whether the release of these announcements provide a trading opportunity for traders with greater research and information processing skills. By partitioning the sample into anticipated and unanticipated PFR announcements this thesis finds that trading activity decreases around anticipated announcements, while trading activity increases around unanticipated announcements. This suggests that uncertainty increases around unanticipated announcements. Liquidity does not change around anticipated announcements. However liquidity decreases following unanticipated announcements. Information asymmetry is found to decrease prior to anticipated announcements and following unanticipated announcements that the market perceives to be good news.