Spillover at warp speed: How earnings announcements ripple through the market

Quarterly earnings season is one of the most closely watched moments in financial markets. Investors, analysts and companies themselves know that when a firm publishes its latest results, the numbers can reshape expectations about profits, demand, investment and the state of the economy. A new study by Kim Christensen and Bezirgen Veliyev from the Department of Economics and Business Economics, Aarhus University, and Allan Timmermann from the University of California, San Diego, shows just how quickly that information is absorbed by markets — and how far its effects can travel.

Their paper, “Warp speed price moves: Jumps after earnings announcements”, has been published in the Journal of Financial Economics. At its core is a simple but powerful question: when companies release large bundles of new information, do markets incorporate that information efficiently and immediately?

The answer, for the largest and most liquid stocks, is broadly yes — and often at breathtaking speed.

The researchers find that in after-hours sessions with earnings announcements, the stock price of the announcing firm jumps in more than 90 per cent of cases. By contrast, jumps are rare during ordinary trading hours or in after-hours sessions when no earnings are released. That matters because it shows that earnings announcements are not just another piece of news: they are among the clearest moments when markets decisively revalue companies.

Why earnings announcements matter so much

An earnings announcement is much more than a company reporting last quarter’s profit. It is one of the key moments when a firm communicates audited financial results, gives investors a fresh reading of business conditions and often signals where management thinks the company is heading next. The announcement may include earnings per share, revenue, margins, guidance and management commentary — all of which can change investors’ expectations in one burst.

Because the timing of these announcements is usually known in advance, traders are ready. For the most actively traded shares, that means the market can respond almost immediately once the figures are published.

The researchers argue that in an efficient market, this kind of information release should trigger abrupt price changes — known in financial economics as “jumps”. If the new information is important and the market is functioning well, prices should not drift slowly towards a new level over hours. They should move straight away. 

An earnings report is rarely just about one company. Investors immediately ask what the figures imply for competitors, suppliers and the industry as a whole

^{Kim Christensen, Professor, Department of Economics and Business Economics, Aarhus BSS, Aarhus University}

A vast dataset from a normally overlooked market

To test this idea, the authors assembled an unusually rich dataset covering the 50 U.S. stocks with the highest after-hours trading volume on announcement days. Their sample spans 2008 to 2020 and includes almost 90 billion after-hours quotes and nearly 8 billion after-hours transactions.

This matters because most large U.S. firms release earnings after the regular trading session has closed, in the after-hours market. Yet that market is much less studied than the main daytime session. Trading volumes are lower, price quotes can be noisier and bid-ask spreads are wider, which makes it harder to measure genuine price reactions accurately.

To deal with that problem, the researchers developed a new statistical jump test designed specifically for noisy, thin after-hours data. Standard methods can misread the market in these conditions, sometimes flagging jumps that are not really there and sometimes missing the real ones.

As Kim Christensen explains: “We developed a new statistical test that can separate meaningful price jumps from the background noise that is typical when trading volumes are low. Without that, it is far too easy to mistake market frictions for genuine information effects.”

That methodological contribution is important in its own right. The paper is not only about what markets do after earnings announcements; it is also about how researchers can measure that reaction properly.

After-hours trading is quiet — until earnings hit

One of the clearest findings in the paper is that the after-hours market is usually subdued unless a company is reporting results. On non-announcement days, there is often very little activity and prices can remain stale for long stretches. But when earnings are released, trading activity surges and price discovery accelerates.

Bezirgen Veliyev describes the contrast this way: “The after-hours market is typically characterised by low trading activity. But when companies release earnings, trading activity increases sharply, and that is when the market plays an important role in incorporating new information into stock prices.”

That helps explain why the researchers focused so heavily on after-hours data. If one wants to understand how modern markets react to company news, it is no longer enough to study only the regular trading session.

The biggest traders with access to the latest technology get first in line with executing their trades well before humans can react to news

^{Bezirgen Veliyev, Professor, Department of Economics and Business Economics, Aarhus BSS, Aarhus University}

The spillover effect: when one company’s news moves others

One important finding of the paper is evidence of spillover effects. The researchers show that earnings announcements do not only move the stock of the company making the announcement. They also increase the probability that other firms’ share prices jump in the same after-hours session, and that the market index itself moves.

This spillover is strongest when firms are in the same industry, when the relevant shares are highly liquid and when the announcing company reports early in the earnings season. That makes economic sense. Early announcements provide fresh clues about conditions in a sector, supply chains, customer demand and pricing power. Investors quickly apply those signals to rivals.

Kim Christensen captures this mechanism: “An earnings report is rarely just about one company. Investors immediately ask what the figures imply for competitors, suppliers and the industry as a whole, and that is why we observe clear spillover effects to other firms in the same sector.”

The study offers several concrete examples of these spillover effects. They appear to be particularly strong in technology and semiconductor sectors. When major companies in these industries report their earnings, the share prices of related firms are more likely to jump as well. The paper highlights the semiconductor cluster around companies such as Intel, Nvidia, Advanced Micro Devices and Micron Technology, where news from one firm can quickly influence the prices of others in the same industry. Similar patterns can also be observed among large technology companies, where investors often interpret earnings results as signals about broader trends in the sector.

The implication is straightforward: investors do not read results in isolation. A report from one large semiconductor company may reveal something about inventories, demand for chips, capital spending or consumer electronics more broadly. In that sense, earnings announcements can provide signals that investors use to reassess the outlook for other firms in the same industry.

The paper also finds that some very large companies can influence the wider market. Announcements from firms such as Apple can move not only related stocks but also the broader index, because investors treat their earnings as signals about consumer spending and economic momentum. In a similar way, results from Nvidia can sometimes have repercussions beyond the company itself because of what they suggest about investment, technology demand and the pace of growth.
 

Faster than any human can react

Another finding of the study concerns the speed of price reactions. The researchers show that for the biggest stocks with the highest trading volume, post-announcement price adjustment can happen in milliseconds. In one example in the paper, trading begins just 15 milliseconds after an Apple earnings release, and hundreds of trades are executed in the first second.

That is a reminder that modern price discovery is increasingly shaped by automated trading systems rather than by human beings manually reading a headline and placing an order.

Bezirgen Veliyev says: “For the biggest stocks with the highest trading volume, we found that prices move within milliseconds, much faster than any human could react to earnings news. The biggest traders with access to the latest technology get first in line with executing their trades well before humans can react to news.”

This point is more than a technological curiosity. It speaks directly to market efficiency. If prices are adjusting this fast, then trading on public earnings news becomes much harder for ordinary investors and even for professional traders without top-tier infrastructure.

Have profitable opportunities disappeared?

The authors also tested whether investors could still earn abnormal returns from simple post-announcement trading strategies. Over the full sample from 2008 to 2020, such strategies did generate positive returns in idealised, low-friction settings. But once the researchers allowed for more realistic conditions — bid-ask spreads and even small delays in execution — those profits shrank sharply.

The key shift came after 2016. In the earlier years of the sample, there was still evidence that fast traders could profit after announcements. In the later period, however, the market became much harder to beat. For the most liquid stocks, the study finds that once trading costs are taken into account, the profits from reacting to earnings news largely disappear.

That does not mean prices never continue moving after an announcement. But it does suggest that for the most actively traded shares, markets have become dramatically better at digesting public information almost immediately.

A study with broader relevance

For economists and business professionals, the wider importance of the paper lies in what it reveals about information processing in modern markets. Earnings announcements remain among the most important moments for firm-level price discovery. But the paper shows that their effects radiate beyond the firm itself: to peers, sectors and sometimes to the whole market.

It also shows that market structure matters. The after-hours market may look thin and imperfect on quiet days, yet on major announcement days it becomes a highly active mechanism for incorporating information. And for the largest stocks, that mechanism has become extraordinarily efficient.

In sum, the study published in the Journal of Financial Economics shows that earnings announcements now trigger near-instant price jumps, that these jumps create spillover effects across related firms and sectors, and that for the most liquid stocks the window for profiting from public news has become extremely narrow. Put simply, when a major company reports earnings, the market is no longer just reacting quickly — it is rapidly incorporating that information into the prices of the announcing firm, related companies and, in some cases, the broader market index. 

Facts

We strive to comply with Universities Denmark’s principles for good research communication. For this reason, we provide the following information as a supplement to this article: