Research On Chinese Stock Market Price And Earnings Based On Investor 's Attention

Price momentum and earning momentum has been globally proven to exist in different stock markets, these are two anomalies which can not be explained by classic asset pricing model under efficient market hypothesis.This paper introduces investor attention, a concept of behavioral finance, to the study of momentum effect. The hypothesis of this paper is that investor attention plays a dual role, the uneven distribution of attention can lead to investors underreaction to some information, while at the same time, overreaction to some other information. Based on this assumption, the paper studied the characteristics of price and earning momentum under different level of investor attention in Chinese stock market, to have a better understanding of local investors reaction to price and earning information.In this paper, both cross sectional and time series studies are conducted, repectively using turnover and market status(up and down) as proxy of investor attention. Based on monthly return and quarterly earning data of Shanghai and Shenzhen A-share listed companies, from1997to2011, main findings are:price momentum profits decrease progressively with turnover, also price momentum portfolio yield significantly negative return under high turnover group; earning momentum profits increase progressively with turnover, also profits are significantly positive under all turnover level. Market status has no significant impact on both price and earning momentum profits.The empirical results of Chinese market and U.S market are quite different. Local Chinese investor overreact to both price and earning information, U.S investors overreact to historical price information while underreact to earning announcement. In this paper, the empirical results are explained based on characteristics of Chinese market and local investors behavior.