PEAD And Its Driving Mechanism:Chinese Evidence

Since the first stock was traded in this planet,academics and professionals have tried all their efforts to prove the existence of excess return beyond the efficient market.The pursuance of alpha made investors keep on studying market anomalies and implement corresponding strategies to lock the abnormal return brought by anomalies.As a very important“anomaly”,Post Earnings Announcement Drift,i.e.,PEAD,was always focused by academics worldwide from its first reference in 1968.After the proof of its existence throughout various markets and regions,PEAD interested the academics in terms of its explanation,while not a consensus conclusion was achieved though.Therefore,the driving mechanism of PEAD still remained unsolved.With many literatures on its existence and explanation,PEAD in Chinese market has been studied for above 10 years.However,in prior researches,without building a mechanism,Chinese academics tended to explain PEAD from one single perspective and attribute it to one or more factors.Moreover,most of these literatures were composed before 2010,when short sales began to be allowed in Chinese market.So,the features of PEAD under this new market environment were lack of coverage.Finally,many prior studies focused on irrational behavior of investors and uncertainty due to accounting accruals when explaining PEAD in an untraditional way,ignoring the significant effects of investor learning process.Besides,without sufficient data,analysts'influence on learning process was seldom referred in prior articles about Chinese PEAD.This article will try to further some work in several sub-aspects of Chinese PEAD studies.Upon reviewing sufficient literatures,we will build a driving mechanism model of PEAD based on earning information,opinion divergence and learning process.In addition,from this model,we will raise a set of questions on several key factors which may significantly affect this mechanism.Within Chinese A-share market which allowing short sales,by implementing several empirical models using the financial data,market data and analyst data,we will study some topics including:(1)the existence of PEAD in Chinese market after 2011:(2)the relationship between opinion divergence of investors and PEAD in Chinese market,with short sale allowed;(3)the effect of short sales on Chinese PEAD;(4)the influence of information quality on Chinese PEAD through opinion divergence;(5)the influence of investor learning process on PEAD driven mechanism;(6)analysts'influence on Chinese PEAD through learning process;(7)the interactive effects of learning process and opionion divergence on Chinese PEAD,from the perspective of analysts;(8)the interactive effects of information quality,learning process and analysts' forecasts revision on Chinese PEAD;(9)the relationship between information uncertainty and Chinese PEAD.Firstly,we proved the existence of PEAD in Chinese market after 2011,and tested the significance of analyst forecasts in PEAD explaining model.And then,based on opinion divergence and earning information,we built a mechanism model which will drive the PEAD through a learning process.Based on this model,first we tested the relationship between opinion divergence and Chinese PEAD,and found:(1)acting as a risk factor,opinion divergence is positively related to PEAD,which provided an evidence for risk redption explanation of PEAD;(2)short sale will affect short-term PEAD of stocks with big negative earnings surprise;(3)information quality will influence PEAD through divergence,which proved opinion divergence is caused by the difference of information processing.Secondary,we tested the effects of learning process in PEAD by using data about analysts.And we found:(1)the influence of analysts in learning process will affect the transition of financial information such as earnings surprise to stock price in PEAD period,while poor information quality will enlarge such effect;(2)analysts can affect PEAD through divergence of investors,showing the interactivity of divergence and learning process in PEAD driven mechanism;(3)acceleration of learning process,as well as information uncertainty,is positively correlated to PEAD,providing the evidence of information risk and risk redption of PEAD.Finally,based on conclusions,we provide some practical suggestions to strategists and policy makers,and prospect further studies on PEAD literatures.