Bid‐ask Spread Components Around Anticipated Announcements

In this paper I re‐examine spreads around dividend and earnings announcements and provide new evidence on patterns by examining the components of the bid‐ask spread. Transaction data are examined through a recently developed spread decomposition model that decomposes the bid‐ask spread into a fixed (execution) component and an adverse selection component. In addition, this model does not rely on a constant spread as previous spread decomposition models require. The results show that around earnings announcements, the bid‐ask spreads and spread components have significant changes indicating that the anticipated announcement is informative. However, the actual public announcement of a dividend does not alter the bid‐ask spread and spread components of actively traded securities.