The Effect Of Stock Extreme Trading Volume On The Stock Price Around The Earnings Announcement

Since Wang and Cheng(2004)and Wang et al.(2017)found that there is a significant “high-volume return discount” phenomenon in A-share market,domestic and foreign scholars have not fully studied the reasons behind this phenomenon.The traditional asset pricing theory cannot explain this phenomenon.The effective market hypothesis believes that investors cannot obtain excess returns based on past stock trading volume information,and can only obtain the yield corresponding to the systemic risk assumed by the stock portfolio.Opinion divergence asset pricing models in the field of behavioral finance relax the homogeneous expectations hypothesis of traditional asset pricing theory,and believe that investor opinion divergence is more in line with market realities than homogeneous expectations.Miller(1977)believes in the presence of short-selling constraint and investor opinion divergence pessimistic investors cannot fully participate in market transactions and stocks finally can only be held by the investors who are most optimistic about stock price expectations,resulting in stock prices are overvalued.The greater the investor opinion divergence,the greater the degree to which stock prices are overvalued.As market information continues to be disclosed and disseminated,investor beliefs will tend to be consistent,and stock prices will gradually return to their true value.This coincides with the stock price movement process of “high-volume return discount”.Boehme et al.(2006),Zhang and Liu(2006),Chen et al.(2009)and Zhu et al.(2016)found that stock trading volume is one of the indicators to measure the degree of investor opinion divergence.The higher the stock trading volume,the higher the investor opinion divergence.Therefore,this paper believes that the stocks which are experiencing unusually high trading volume have a high degree of investor opinion divergence,and the decrease in investor opinion divergence is the reason for the “high-volume return discount” phenomenon in China.The A-share market is dominated by retail transactions and most of the stocks are still not available for short selling,making the two conditions from Miller's opinion divergence asset pricing model-investor opinion divergence and shortselling constraint are met.In order to test the decrease in investor opinion divergence is the reason for the “high-volume return discount” phenomenon in China,this paper uses the earnings announcement as an exogenous event that affects investor opinion divergence,because the earnings announcement is an important external periodic information disclosure event.The earnings surprise in the earnings announcement conveys new information about the company's future cash flow to the market,and the earnings information can reduce the degree of investor opinion divergence.Therefore,this paper uses the daily transaction data of A-share listed companies from 2007 to 2018,using group test and fama-macbeth regression method to study the price around the earnings announcement of stocks experiencing unusually high trading volume before the earnings announcement,whether it will be reduced,and whether the cumulative abnormal return during the earnings announcement period is significantly lower than the stocks of the remaining trading volume group.This paper finds that:(1)The cumulative abnormal returns of stocks experiencing unusually high trading volume before the earnings announcement are negative around earnings announcements,and lower than those of the remaining trading volume group.The unusually high trading volume before the earnings announcement represents a high degree of investor opinion divergence.The release of earnings information in the earnings announcement decreases the investor's opinion divergence,which makes the stock price return to true value which was overvalued due to investor opinion divergence and short selling constraint before the earnings announcement.(2)The high-volume return discount of stocks with lower short-selling constraint is lower around the earnings announcement.(3)Small cap stocks,low analyst coverage stocks,and high equity dispersal stocks are likely to form a speculative bubble before the earnings announcement due to investor opinion divergence.Therefore,the high-volume return discount of these stocks are higher around earnings announcement.The main contributions of this paper are as follows:(1)This paper chooses the earnings announcement as an exogenous event that affects investor opinion divergence to verify that the decrease in investor opinion divergence is the reason for the “high-volume return discount”.(2)This paper provides empirical evidence for the opinion divergence asset pricing models by distinguishing the extent of stock short selling and the stock trading sector to verify the content of the opinion divergence asset pricing models.(3)The conclusions of this paper provide empirical support for investors to build investment strategies;provide ideas for how to improve the A-share market structure and lead the market participants' value investment in the future;provide theoretical support for deepening the securities short selling mechanism and improving the information disclosure system of listed companies.