Study On The Predictive Ability Of Bond Price For Post-earnings Announcement Drift In China`s Stock Market

Earnings announcement is the main component of accounting information disclosure.As a barometer of the company's operating conditions,it conveys the company value information to the market.Investors make investment decisions based on the information obtained,which affects the securities prices of relevant companies.Ball and Brown,the founders of empirical research in accounting field,drew the conclusion that accounting earnings have information content by discovering the earnings announcement effect in the stock market,which opened a great historical curtain for the scientization of accounting discipline.The existence of earnings announcement effect indicates that stock prices do not absorb earnings information quickly,but gradually over time.According to the data of the Shanghai Stock Exchange Statistical Yearbook in 2017,the proportion of individual investors' shareholders reached 99.78%,and the proportion of trading transactions reached 82.01%.Individual investors' participation in market transactions was highly active,and the Chinese stock market was dominated by individual investors.Compared with the stock market,the bond market in China is dominated by institutional investors.The institutional investors with rich experience,professional ability and resource advantages can better grasp and interpret the information in the market and adjust their asset allocation,which will enable bond prices to reflect earnings information more quickly and effectively.Then,after the earnings announcement,the bond price response should have the ability to predict the stock price that gradually absorbs earnings information.This paper will study this ability in detail.Based on the literature review,this paper reviews the development of China's bond market.From the perspective of bonds,and on the basis of efficient market hypothesis,behavioral finance theory,information asymmetry theory and attention theory,this paper analyses the mechanism of bond price reaction on the prediction of earnings announcement effect in stock market,credit rating and institutional shareholding which affect the prediction ability.And put forward the corresponding hypothesis to provide a sufficient theoretical basis for empirical testing.Selecting listed companies with bond-related A-share stocks in China from 2011 to 2017 as samples,this paper tests the predictive ability of bond excess returns to the cumulative abnormal returns after the earnings announcement of the bond-related stocks.This paper finds that the change of bond excess yield from 1 day before earnings announcement to 1 day after earnings announcement can predict the cumulative abnormal returns of stocks in the window period(2,41)after announcement,and this prediction ability will not be significantly different because of the good or bad earnings information.Then,based on the test of the seemingly unrelated model SUR,the credit rating negatively affects the prediction of bond price response.Ability,that is,the lower the credit rating of listed companies,the stronger the prediction ability of bond returns to the cumulative abnormal returns of stocks,and vice versa.Subsequently,based on Fisher's portfolio test and introducing interactive items,it is found that the institutional ownership ratio of listed companies has a negative impact on the prediction ability of bond price response,that is,the higher the institutional ownership ratio of listed companies,the bond price response.Finally,considering the self-correlation of quarterly earnings data,a compromise model is constructed to test annual earnings data.The results also support the proposition of this paper.This paper shows that the bond price in the bond market dominated by experienced investors in China absorbs and digests earnings announcement information more quickly than the stock price.