Based On The Earnings Announcement Reaction Studies Investors Limited Attention

Psychology research found that attention is limited. Attention to one task necessarily requires a substitution of cognitive resources from the others. In modern social, with the plentiful information, attention is a kind of scarce resources. In capital markets, investors must deal with variety of macro and micro information before making a decision. However, when investors allocate their attention, they will be affected by the subjective factors, the objective characteristics of information, and environmental factors. In recent years, some scholars make a lot of research from the limited attention perspective. This paper directly tests the market reaction to annual reports, find the distracting effect and highlight effect.Firstly, this paper discusses the concept and thorey of limited attention, and the formation mechanism of the distracting effect and highlight effect. Secondly, based on the relevant annual reports data from2005to2010, this article compares the attention of annual report between the intensive disclosure period and the dispersion disclouse period, and between the up list rank companys and that’s not listed. Finally, this paper makes empirical analyses on the distracting effect and highlight effect.in view of limited attention.This study concluded that:(1) the immediate price and volume reaction to a firm’s earnings surprise is much weaker, and post-announcements drift much stronger, when a greater number of same-day earnings announcements are made by other firms, the post-announcements drift becomes significant around15days after the announcement;(2) The annual reports up list rank have immediate market reaction compared with the annual reports that’s not listed. Futher analysis we find that the rank of cctv-2is the listed companys’cause of the highlight;(3) This paper find that the immediate market reaction of the up list rank company is no absolute advantage, if the up list rank companys disclose their annual reports during intensive disclosure period.