Dissertations, Theses, and Capstone Projects

Date of Degree


Document Type


Degree Name





Partha Deb

Committee Members

Michael Grossman

Robert Schwartz

Subject Categories

Behavioral Economics | Finance


Microstructure, Divergent Expectations, Price Discovery, Short Interest, Complexity, Earnings Announcements


Purpose: To provide empirical evidence supporting the claim that divergent expectations underlie price formation during the U.S. equity market opening hours. We focus on earnings announcements to support this claim. This dissertation argues that the clarity of earnings announcements and a firm’s balance sheets is inversely associated with the quality of price discovery during the opening hours after the earnings announcements, as ambiguities in information underlie divergence in expectation. We look at short-term volatility during the opening half-hours of U.S. equity markets after the earnings announcements to assess the quality of price discovery. We also consider changes in short-term volume, bid-ask spread, effective spread, etc., during the trading day after the earnings announcements in U.S. equity markets from 2006 to 2013.

Design: This is an empirical dissertation based on the claim that dynamic price discovery under divergent opinions is a leading factor in determining the price discovery quality during the opening hour of the U.S. equity market. We look at earnings announcements and use a unique newswire dataset with an accurate earnings announcements timestamp to verify this claim. The research uses the well-known finding that intra-day volatility is U-shaped, which we expect to be more pronounced after earnings announcements. We also look at bid-ask spreads and other microstructure variables for measuring the quality of price discovery. We form subgroups based on manifestations of divergence of opinion and clarity of information released during the earnings announcements. More specifically, we use high short interest as manifestations of divergent expectations, higher intangible to total assets before the earnings announcements, and a high magnitude of overnight reaction unexplained by earnings surprises after earnings announcements as a manifestation of information complexity.

Findings: Firms with higher intangible assets to total assets, a high overnight reaction in excess of earnings surprises after earnings announcements, and high short-interest tend to have challenging price formation during the opening half-hours after the earnings announcements. Research also shows that during periods of high uncertainty such as 2008, there is a higher divergence in expectation, which leads to a more complex price formation during the opening half-hours after the earnings announcements in the U.S. equity market.

Originality/value: This is an original empirical paper. The work is a unique application of the divergent expectations paradigm.