| In 1970,Fama proposed the Efficient Market Hypothesis(EMH),which became the core analysis of traditional financial theory.EMH means that the price of the market has contained all the information,and the attempt to profit from the information will no longer exist.Earnings momentum refers to companies with unanticipated high earnings that have a more sustained high yield,and companies that have unexpected low earnings have a more sustained low yield.However,as one of the financial anomalies,earnings momentum has been widely confirmed by many literatures and cannot be explained by EMH.In recent years,earnings momentum is more explained by the theory of limited attention,because limited attention leads investors to ignore important information and then results in insufficient response.The information that people can pay attention to is only a subset of all the information flow because of the limited attention.What kinds of information can attract investors' attention? So the analysis of the information flow becomes increasingly important.The research on the existence of earnings momentum has been deeply studied,but there are few research on information discreteness level.This paper introduces the concept of information discreteness index(ID),which is based on the quarterly,semi-annual and annual financial reports between 2011 and 2017.The two-stage cross-section regression method proposed by Fama-Macbeth(1973)is applied in this paper and Newey-West(1987)robustness standard error is used to correct autocorrelation and heteroscedasticity.The research logic of this paper is to first verify whether there is earnings momentum phenomenon in China's stock market.Then,this paper introduces the information discreteness and establishes the relationship between information discreteness and other attention indexes and firm character indexes.Third,in order to confirm that information discreteness can still explain the earnings momentum after excluding the influence of other attention indicators and firm character indicators,the residual of the information discreteness is used to explain the earnings forecast error and the holding period yield rate.Fourth,this paper constructs a two-factor joint investment strategy of standardized unanticipated earnings and information discreteness.We want to see if the earnings momentum is stronger when information is continuous.And then divide the different attention groups by information discreteness to seek for higher strategic benefits.Finally,after considering the impact of different market conditions,this paper test the main hypothesis to see if market conditions will make a big influence.The main conclusions of this paper are:(1)China's stock market has a earnings momentum effect when holding periods are three months and six months,but momentum effect is not significant when holding for one month,one year or two years.(2)Information discreteness can tell the information flow of the stock returns.When the returns show suddenly and discretely,the information discreteness will be higher.When the returns show smoothly and continuously,the information discreteness will be lower.Information discreteness has a significant correlation with firm character indicators and attention indicators that are already proved in the literature.Information discreteness has a positive relationship with turnover,a negative relationship with unexpected earnings surplus which means the extreme values of standardized unexpected earnings.(3)When this paper uses residual information of the information discreteness to regress analyst forecast error,I find the analyst forecast error is larger when the analysts' attention is lower.When the residual information of the information discreteness is continuous,the three-month and six-month holding yields are higher.And there is a joint influence of SUE and ID,that is earnings momentum is stronger when information is continuous.(4)This paper constructs the SUE-ID two-factor grouping strategy and finds that in different information discreteness groups,earnings momentum is still significant.With the increase of information discreteness,the earnings momentum has a tendency to gradually decrease.Constructing the final portfolio to buy the stocks with the highest standardized unanticipated earnings and the least information discreteness,and to sell the stocks with the smallest standardized unanticipated earnings and the largest information discreteness,can obtain higher returns.(5)In the bear market,the earnings momentum is more significant.But in the bull market,using the information discreteness to group the earnings momentum is more significant,and the performance of standardized unanticipated earnings will aggravate the weakening effect of information discreteness.The innovations of this paper include:(1)There are few literature about information discreteness,so this paper uses information discreteness to analyze China's stock market.Information discreteness can be divided into continuous information and discrete information.It can reflect the degree of attention,and then can explain earnings momentum.Finally this paper builds a portfolio based on information discreteness.There are few research in this field.(2)This paper uses the ID residual term(the residual of the Fama-Macbeth method regression ID and the common firm character indicators and attention indicators)to regress analyst forecast error.The explanatory effect proves that after excluding the indicators that are studied in the former literature,the residual of information discreteness can still explain the earnings momentum.(3)This paper compares a variety of single-factor and two-factor joint strategies,which show that earnings momentum is stronger when information is continuous.(4)This paper uses two-factor grouping of standardized unanticipated earnings and information discreteness to construct investment strategy,and compares with other single-factor and two-factor joint strategies,which can finally prove the strategy in this paper has the best performance.(5)This paper tests its applicability in bull market and bear market.(5)Most of the literatures use the annual and the semi-annual report,this paper uses quarterly,semi-annual and annual reports to obtain a larger amount of data.Because of the author's limited research ability,the following deficiencies need to be improved in the future:(1)There are still many ways to explain the earnings momentum in the literature.This paper only focuses on the degree of attention.(2)When the information discreteness is constructed,it does not take into account the magnitude of the stock return,but only considers the positivity and negativity of the return.However,since there are not many documents that can be referenced,this paper can not find a better way to construct the information discreteness.Future research can build a better formula by giving different weights to different yields.(3)Although the paper analyzes the earnings data of the quarterly,semi-annual and annual report,it does not discuss the three situations separately.And this paper does not give a conclusion whether the research results of different report types are different.Future research may discuss them separately. |
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