Changes in analysts' information around earnings announcements.

Accounting Review,  October, 2002  by Orie E. Barron

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I. INTRODUCTION

Theoretical models traditionally regard public earnings announcements as commonly observed by all market participants (e.g., Diamond 1985; Kim and Verrecchia 1991, among others). Such public information reduces market participants' incentives to develop private information, if the public and private information are substitutes. This in turn reduces the amount of uniquely private (or idiosyncratic) information in the market (see Verrecchia 1982; Diamond 1985; Kim 1993).

In contrast to the traditional view, another stream of theoretical research posits that public announcements can increase idiosyncratic beliefs among market participants. For example, public announcements create idiosyncratic beliefs in Varian (1989), Harris ...