Earnings Announcement Effect Of The Chinese Stock Market Research

The paper intends to explain the anomalies in the behavioral finance aspect. According to classic finance theories, the stock market is efficient, which means nobody can get extra profit through holding any information, either public or inside ones. However, there are various anomalies in the market, including the post-earnings-announcement-drift (PEAD). In China, investors tend to get profit during the period that annual reports of listed companies are released, which is against the classic finance theories. Compared to the rationalization assumption of classic finance theories, behavioral finance theories acknowledged human's cognitive limitation, which induced the limited attention hypothesis as the explanation to the anomalies. The number of released reports on the same day could lead to the underreaction of the market.The paper adopted the event study as well as multi-variable regression. First, the paper analyzes the characteristics cumulative abnormal returns of the sample which is grouped by the reports number and forecast error. Second, the multi-variable regression is implemented to examine the relationship between the reports number and underreaction degree with/without the consideration of control variables, including size effects, turnover, number of analyst, etc. The study gives the conclusion that the more the reports are released on the same day, the further market will underreact to the forecast error. However, the degree is well less than the similar study about the western market.Based on the study result, the paper suggests that the regulation organizations should improve Chinese market efficiency through regulating the earning reports release concentration. Besides, it is hardly to get large earnings over the market index through the strategy of buy-and-hold the companies whose earnings are beyond expectation. Further study may focus on the relationship between reports amounts and trading volume.