Empirical Research On Investors’ Heterogeneous Beliefs And Price Reactions To Earnings Announcements

Traditional asset pricing models assume that all investors have same expectations about thefuture return of stocks. However, the homogeneous expectations assumption can hardly be achievedin reality, opinion divergence is a more suitable assumption in real stock market. Foreign scholarshave begun trying to explain the relationship between earnings disclosure and stock price adjustmentfrom the perspective of investors’ heterogeneous beliefs. The heterogeneous beliefs asset pricingtheory believes that public disclosure of information will lead to the change of investor opiniondivergence degree during announcement period. In the presence of short selling restrictions, changesof heterogeneous beliefs will affect the announcement period stock returns, deviating from orreturning to the basic value. Heterogeneous beliefs asset pricing model provides a new thought for ourinterpretation of the stock abnormal return during period of disclosure.Firstly, in this paper, we define the concept of heterogeneous beliefs and analyze the causes ofinvestors’ heterogeneous beliefs. Then we describe the mechanism of heterogeneous beliefs on assetprices and put forward the hypothesis of the text. In the empirical part, we use portfolio method andmultiple regression analysis to investigate the effect of investors’ heterogeneous beliefs on pricereaction to earnings announcements in the short selling constraints. Then we research the situation ofstock before and after the development of margin trading system based on the boundary of2010. Wecompare the change of effect of investors’ heterogeneous beliefs on price reaction to earningsannouncement in the two stages.The empirical results show that, in the presence of strict restrictions on short selling, the degreeof investors’ heterogeneous beliefs before the earnings announcements has negative correlation withthe excess stock returns during the period of the public announcements. The degree of Investors’heterogeneous interpretations on the earnings information is positively related to the excess stockreturns during earnings announcements. The cumulative excess return after the earningsannouncement is negatively related to the degree of investors’ heterogeneous interpretations on theearnings information, and the negative correlation degree increases with the extended holding periodafter the announcement. In the margin trading system, the influence of heterogeneous beliefs on pricereaction to earnings announcement is weakened.