Asymmetric decrease in liquidity trading before earnings announcements and the announcement return premium

Investors are reluctant to trade in the high-information-asymmetry days before earnings announcements. We show that the decrease in liquidity trading before announcements is asymmetric. We analyze buy and sell orders of investors with passive investment strategies, and find they do not reduce their sales as much as their purchases in the days before announcements. Investors needing liquidity sell stocks at a discount relative to the post-announcement price, and these preannouncement liquidity sales are a significant driver of the average positive returns, or return premium, known to characterize announcement days.