Investor Attention And Post-Earnings-Announcement-Drift

In Financial Economics, post-earnings-announcement-drift or PEAD (also named the SUE effect) is the tendency for a stock’s cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks (even several months) following an earnings announcement. Based on the Efficient Market Hypothesis or EMH, the stock price has already reflected all the related information. However, it has long been known that this is not exactly what happens.Since PEAD was initially proposed by the information content study of Ball and Brown (1968), the phenomenon has been widely examined by researchers. In this paper, Ⅰ use event study method to analyze the data of China’s listed companies from2010to2012. Firstly Ⅰ examine the existence of PEAD phenomenon in China’s stock market and try to describe its moving trend. Motivated by psychological evidence that attention is a scarce cognitive resource, and then Ⅰ examine the relationship between investor attention and the PEAD in China. The existing literatures in China analyze the PEAD without considering the effect of short selling. Since China has approved margin trading in Mar.31,2010,1take the short selling as an explanation of the empirical results.The empirical results show that:a) The PEAD phenomenon does exist in China’s stock market, but it has different drifting trend from that in foreign mature security market. b) The relationship between investor attention and PEAD is significant negative in the long run. c) The relationship between investor attention and the PEAD has been affected by the short selling mechanism. Higher investor attention around negative earnings event is associated with negative abnormal returns, which is inconsistent with the result examined under the restriction of short selling.