The Impact Of Informed Tradings On Stock Abnormal Returns Around Earnings Announcements

The emergence of the financial market micro-structure theory has proved that the market is not perfectly efficient and there is information asymmetry. Studies showed that informed tradings caused by information asymmetry can have an impact on the asset returns. Securities tradings in China started relatively later compared with those in westen countries, resulting in the immaturity of the market regulation system in China with higher possibility of informed tradings. This paper focuses on the institutional tradings and makes an investigation on the impact of informed trading on stock abnormal returns around earnings announcements. We try to find out whether there may be institutional informed tradings and test the impact of informed tradings on abnormal returns.This paper selects 2728 event samples of quarterly earnings announcements of the stocks in Hushen300 Index between 2011 and 2013. Using the cumulative abnormal net institutional tradings(InsNT) and the possibility of informed tradings(PIN) as the indirect and direct measure of informed tradings, we get the following results. Firstly, the 10-day and 20-day cumulative abnormal net institutional tradings has a positive impact on the post-earnings announcements abnormal returns, implying that institutional investors may use private information to get profits. Secondly, the possibility of informed tradings(PIN) has a negative impact on the post-earnings announcements abnormal returns, implying that PIN may be a factor related to the amount of infornation. Lastly, the impact of information trading probability on the abnormal returns is affected by cumulative abnormal net institutional tradings(InsNT). When the cumulative abnormal net institutional tradings exceeds a certain number, PIN is a risk factor that has a positive impact on abnormal returns, otherwise is a factor related to the amount of infornation that has a negative impact on abnormal returns.