How Attention Constraints Affect Post-earnings Announcement Drift: Evidence from the Chinese A-share Market

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Journal of Central University of Finance & Economics ›› 2021, Vol. 0 ›› Issue (6) : 27-38.

DING Ming-fa, LI Si-yu, WANG Hao, SHEN Mi

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Abstract

This paper seeks to explain the anomaly that occurs after earnings announcement in the Chinese A-Share market using the theory of attention constraints.First,we find that the effect of post-earnings announcement drift(PEAD) is significantly stronger on market moving days than non-market moving days.Our results are robust when using different event windows,or using preliminary earnings announcement as an event day,or after controlling for other relevant variables(such as friday effect,firm size,the number of analyst reports).Second,we find that investors are less speculative towards individual stocks before announcement on market moving days.Third,we find that an increase in institutional ownership will weaken the PEAD effect.Our findings extend the existing literature by suggesting that investors focus more on market information than firm-specific information on market moving days since their attentions are limited.

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Post-earnings anouncement drift / Attention constraint / Market movement

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DING Ming-fa, LI Si-yu, WANG Hao, SHEN Mi. How Attention Constraints Affect Post-earnings Announcement Drift: Evidence from the Chinese A-share Market[J]. Journal of Central University of Finance & Economics, 2021, 0(6): 27-38

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