Friday Night Secrets (Part 2)

I’ve been reviewing an article by Michaely et. al that suggests Friday evenings are used to hide bad news.

The authors conclude:

      > Additional results show that Friday evening announcements are also
      > more likely to be followed by a delisting event or merger completion,
      > suggesting that managers may announce on Friday evening to avoid
      > market scrutiny.

More specifically, they found Friday night announcers were five times more likely to be dropped from an exchange or liquidated. They were more than twice as likely to be delisted due to merger completion within 120 days of the announcement.

      > Friday evening announcements are rare (only 1.08% of earnings
      > announcements), which implies that most firms do not engage in
      > opportunistic announcement timing. Nevertheless, this small portion
      > of announcements provides rather robust evidence that the market
      > is inefficient with respect to certain aspects, such as the
      > response to the timing of news releases.

I found this study very interesting.

Is there really any trading edge here? That would be a different study but this gives at least some reason to think so. Liquidity is important and I would want to get a better profile for what kind of companies make Friday night announcements. Certainly we don’t see an AAPL or GE announcing earnings on Friday night.

I don’t often read full texts of financial manuscripts. I will come back to this in a future blog post to detail some of their good science and give implications for other trading strategy analysis.