Who profits from trading around earnings announcements? Evidence from TORQ data

Using the TORQ database, we investigate whether equity trading by individuals and institutions around earnings announcements generates any profit for those trader groups. We define profit as the excess return over a passive portfolio return. Our results indicate that institutional investors do not earn excess returns from trading either before or after announcements. Individuals earn weakly significant positive excess returns from their trading during the half hour before announcements, but they also suffer a significantly negative excess return from trades on the day after announcement. Institutions suffer trading loss one hour after announcements and on the day before and one day after announcements. We interpret these losses as due to the adverse price effect of trade size.