Research On Abnormal Volatility Of Lottery Stocks Before And After Earnings Announcement

The company’s stock price has a trend continuation before and after the earnings announcement,which is called the post-earnings announcement stock price drift(PEAD).However,the phenomenon of deviation from the stock price drift after the earnings announcement has appeared in Chinas A-share market.This article studies the abnormal stock price fluctuations before and after the earnings announcement from the perspective of trading behavior,and believes that this phenomenon is related to investors’ gambling preferences to lottery stocks before earnings announcements.These lottery stocks tend to be overvalued due to excessive speculative pursuits,and the future average return is significantly lower than that of non-lottery stocks,which as a result destroys the continuation of stock price trends.This paper analyzes the excess return price difference between lottery stocks and non-lottery stocks on the benchmark index before and after earnings announcements to conduct an empirical test on the speculative trading behavior of lottery stocks.At the same time,it also examines the mechanism that affects the speculative trading.The results showed that:(1)Investors’ demand for lottery stocks was particularly strong before the earnings announcement,which caused the price of such stocks to spike up,and after the earnings announcement,the earnings performance of non-lottery stocks reversed,and the excess return spread was still significant after excluding other stock price impact variables.(2)Regardless of whether the earnings announcement presents good news or bad news,it does not affect the income spread model that reflects the gaming effect.The stock price of lottery stocks rose abnormally before the earnings announcement and fell sharply after the earnings announcement,while non-lottery stocks did not show this type of abnormal phenomenon;(3)Based on the inspection of the return spread of false earnings announcements and various news type,it is confirmed that the main conclusion is robust.Due to investors inherent preference for lottery stocks and the pre-earnings betting effect,investors demand for lottery stocks before earnings announcements has a significant increase in demand effect,resulting in their earnings performance being better than non-lottery stocks.After the earnings announcement,whether the performance meets expectations or poor performance,the return gap will be reversed sharply.The conclusions of this article can be used to explain the phenomenon of stock price reversals before and after earnings announcements in the market,and also have certain guiding significance for investment practice.