Pre-Announcement and Event-Period Private Information: A Trading Volume Analysis of Firm Size and Institutional Ownership Effects

We study cross-sectional differences in pre-announcement and event-period private information acquisition across firm size and institutional ownership using trading volume reactions to earnings announcements. We find that abnormal volume associated with absolute price change increases with both firm size and institutional ownership, suggesting that pre-announcement private information acquisition increases with firm size and institutional ownership. We also find that abnormal volume independent of absolute price change increases with institutional ownership, suggesting that event-period private information acquisition increases with institutional ownership. In contrast, abnormal volume independent of absolute price change decreases with firm size, reflecting the previously documented positive relation between firm size and the precision of pre-announcement public information. By demonstrating that firm size and institutional ownership are determinants of pre-announcement and event--period private information acquisition, this study provides new insights regarding the incentive to acquire private information around earnings announcements and helps explain prior empirical results in trading volume reaction studies.