The Dynamics of Information Production and Diffusion : Evidence from Buy-Side Participation in Earnings Conference Calls

We study information production and diffusion resulting from dynamic interactions between different types of informed investors in financial markets. Using a theoretical framework that exploits the setting of the Q&A section of earnings conference calls, we predict that information production from buy-side participation is more likely to trigger high price jumps and abnormal trading volume, as well as a subsequent price drift, relative to sell-side participation. Using high-frequency trading data during earnings conference calls we find evidence consistent with our prediction. The impact of buy-side participation on asset prices and trading activities is particularly strong when buy-side participants are affiliated with hedge funds. Our theoretical and empirical analyses shed light on how information complementarities affect financial market outcomes and provide an explanation to the "Einhorn Effect'" that intrigues practitioners and policy makers