05 Mar In a classic study, Beaver (1968) examined the tra
In a classic study, Beaver (1968) examined the trading volume of firms’ securities around the time of their earnings announcements. Specifically, he examined 506 annual earnings announcements of 143 non- December 31 year end NYSE firms over the years 1961 1965 inclusive (261 weeks). For each earnings announcement, Beaver calculated the average daily trading volume (of the shares of the firm making that announcement) for each week of a 17- week window surrounding week 0 (the week in which the earnings announcement was made). For each firm in the sample, he also calculated the average daily trading volume outside its 17- week window. This latter calculation was taken as the normal trading volume for that firm’s shares. For each week in the 17- week window, Beaver averaged the trading volumes over the 506 earnings announcements in the sample. The results are shown in Figure 5.4 below. The dotted line in the figure shows the average normal trading volume outside the 17- week window. As can be seen from the figure, there was a dramatic increase in trading volume, relative to normal, in week 0. Also, volume is below normal during most of the weeks leading up to week 0. Subsequent research investigates factors affecting the week 0 increase in trading volume, based on the decision theory model of Section 3.3. A key driver of this volume is the extent to which prior beliefs about future firm performance differ across investors. If investors are primarily small, such as Bill Ca
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