Investor And Price Response To Patterns In Earnings Surprises In China

In recent years, more and more market anomalies appearing in stock market, is the great challenge for the traditional theory of the finance, and promote the vigorous development of behavioral finance. Barberis, Shleifer, and Vishny (1998) proposed the BSV model, using the two deviations of cognitive psychology:" representative bias" and "conservatism" to explain the returns of positive autocorrelation in short-term and negative autocorrelation in long-term. BSV model believes that investors would extrapolate the trends based on the performances of historical earnings. This article examines the parts model about the investors trading style in BSV model, and finds that continuous string of earnings surprise existing in the same continuous signs will affect the behavior of investors. As the length of continuous string of the earnings surprise increasing, individual investors will sell less (more) stocks. But this does not affect returns. Even if the investor's behavior will be affected by earnings surprise, but the behavior of investor is not the main factor influencing the market returns.Further more, this article finds that the signs of earnings surprise (positive or negative) has significant effects on the behaviors of investors and returns. Whether long or short, positive earnings surprise is remarkably higher than the negative earnings surprise in the whole market. This article is proved from different points of view on China's stock market that the individual investors perform overreaction to the positive earnings surprise, and underreaction to the negative earnings surprise. Accordingly, investors like to search the appropriate behavioral investment strategies in order to obtain high yield,. At the same time, we find that investors can get higher returns when the portfolio has the 3 months'formation period, and investors perform overreaction in the short formation period, but certain overreaction and underreaction in the long time. This article construct investment portfolio that have different formation and holding period, and find that investors overreact to bad news in short-term, overreact to good news and underreact to bad news for long-term.