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Limited Attention and Post-Earnings Announcement Drift: Evidence from China s Stock Market

Author

Listed:
  • Qian Chen

    (Business School, Shenzhen Technology University, China,)

  • Xiang Gao

    (Research Center of Finance, Shanghai Business School, Shanghai, China,)

  • Gangchen Liu

    (Graduate Student at Peking University, HSBC Business School, China.)

Abstract

This paper utilizes Chinese stock data to provide further evidence on the power of limited attention theory in explaining post-earnings announcement drift. As retail investors prevail in China and they are easily distracted by market swings, we should expect severe attention problems, resulting in larger underreaction to firm information and higher sensitivity to market movement, i.e., the so-called market movement effect . After accounting for special arrangements such as preannouncements and earnings previews, we confirm a strong presence of this effect in Chinese stock market, given the Friday effect and announcement concentration effect being controlled for. Moreover, the effect is asymmetric in market up and down, and becomes more pronounced for small-cap and value stocks.

Suggested Citation

  • Qian Chen & Xiang Gao & Gangchen Liu, 2021. "Limited Attention and Post-Earnings Announcement Drift: Evidence from China s Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 11(1), pages 1-17.
    • Handle: RePEc:eco:journ1:2021-01-1
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    More about this item

    Keywords

    Limited attention; earnings announcement; market movement; China s stock market; abnormal returns;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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