Study Of The Post Corporate Announcement Price Drift In The Chinese Capital Market

The classic asset pricing theory document that the systematic risk loading could explain the changes in the cross-sectional expected returns.However,there are various anomalies in the capital market.The anomaly is defined as the price patterns that could not be explained by the asset pricing model.The expected return of an anomaly is predictable after controlling for common risk factors.These findings pose a strong challenge to the efficient market hypothesis(EMH).Some researches find that stocks typically experience price drifts for months after the corporate announcements.Based on the post corporate announcement price drift,that is,analysts’ recommendation price drift and post-earnings announcement drift,this paper investigates the price patterns and the main driving mechanisms of the post corporate announcement price drift and explores its potential determinant.First,this paper studies the price drift after analysts’ initial stock recommendation,proves the existence of the post corporates’ announcement price drift and preliminarily discuss the driving factors that affect the corporate announcement price drift.The empirical results prove the existence of price drift and verify that mispricing is the important mechanism of the price drift.That is,limited attention is the main driver of the corporate announcement price drift and the limited arbitrage is the main driver of the persistence of the price drift.In fact,limited attention and limited arbitrage are not only the influencing factors of analysts’ recommendations price drift,but also an important reason for the post-earnings announcement drift(PEAD),which is one of the most robust anomalies through the world.In the second part,this paper investigates how the reform in the capital market affects the post-earnings announcement drift and its mechanism.In the Chapter 4,based on the quasinatural experiment that the A-share market launched the pilot of margin-buying and shortselling in March 2010,we apply the multi-period difference-in-difference method to study the effect of lifting the short-selling constrains on the post-earnings announcement drift and its mechanisms.The results of the study find that lifting of the short-sale significantly reduces the magnitude of price drift and arbitrage profits after earnings announcements.For the good news with unexpected earnings,the reduction in price drift after the lifting of the short-sale constraints is more significant.The findings of mechanisims show that the reduction in price drift following earnings announcements is directly driven by a reduction in arbitrage limits.Further analysis suggests that the improvement in information asymmetry is a potential factor behind the reduction in price drift following earnings announcements.These findings support the interpretation of mispricing for post-earnings announcement price drift under lifting the short selling constraints,especially of the limited arbitrage.In Chapter 5,based on the quasi-natural experiment of widening the price limits of the Chi Next in 2020,this paper applies the difffence-in-difference method to examine the effect of the widening of the Chi Next price limit from 10% to 20% on the price drift after the earnings announcement.The results of the study find that widening the price limits significantly reduces the post-earnings announcement drift and improves the price discovery.For good news,the reduction in price drift after earnings announcements is more pronounced after the widening of the price limit.The mechanisms show that the price drift after earnings announcement is jointly driven by two factors: limited arbitrage and limited attention.Further research finds that widening the price limit improves information asymmetry,which is conducive to reducing limited arbitrage and investors’ limited attention.Therefore,the improvement of information asymmetry is a potential factor for the reduction of price drift after earnings announcements.These findings provide the latest empirical evidence for improving the asset pricing.In the third part,this paper investigates how the openness of the capital market affects the post-earnings announcement and its mechanism.In Chapters 6 and Chapter 7,based on the two events of “Shanghai-Hong Kong Connect" and "Shenzhen-Hong Kong Connect",this paper investigates the changes in the post-earnings announcement drift in the segmented market and reveals its mechanisms.In the Chapter 6,the findings based on the exogenous event of"Shanghai-Hong Kong Connect" show that the post-earnings announcement drift after the implementation of "Shanghai-Hong Kong Connect" decreases significantly in the mainland market,while in the Hong Kong market increases.Contrast to two findings,we find that post-earnings announcement drift is directly affected by limited attention and limited arbitrage.This result is consistent with the mispricing hypothesis.After in-depth research,it is found that after the implementation of "Shanghai-Hong Kong Connect",both markets affect the postearnings announcement drift through changes in information asymmetry.Therefore,this paper finds that information asymmetry is the potential reason for the post-earnings announcements drift for the segmented market.The findings in this paper provide evidence of post-earnings announcement drift in segmented market.In Chapter 7,the empirical results based on the natural experiment of "Shenzhen-Hong Kong Connect" show that "Shenzhen-Hong Kong Connect" significantly reduces the magnitude of the post-earnings announcement drift in Shenzhen and Hong Kong markets.Further study shows that limited attention and limited arbitrage directly affects the post-earnings announcement drift,thus providing the evidence for the mispricing explanation of post-earnings announcement drift.In-depth analysis finds that after the implementation of Shenzhen-Hong Kong Connect,the improvement of information asymmetry between the two markets affected the limited arbitrage in the Shenzhen and Hong Kong markets,thereby reducing the magnitude of post-earnings announcement drift.In recent years,the reform and openness of the A-share market has been gradually strengthened.In Chapter 8,based on the quasi-natural experiment of the inclusion of A-shares in the MSCI index,this paper applies the differenc-in-difference methodology to investigate the impact of the inclusion of A-shares in the MSCI index on the post-earnings announcement drift and its mechanisms.The results show that the inclusion of A-shares in the MSCI index significantly reduces the post-earnings announcement price drift.For firms with large size,good liquidity and profit that are listed in regions with a high degree of market financialization,the price drift reduction of the underlying stocks after the A-shares are included in the MSCI index is more significant after the earnings announcement.The mechanisms show that the reduction of limited arbitrage and the increase of investor attention weak the magnitude of the postearnings announcement drift of A-shares after the inclusion of the MSCI index.Further analysis shows that the inclusion of A-shares in the MSCI index reduce the information asymmetry,reduced limited arbitrage,and increased investor attention.Therefore,the improvement in information asymmetry is a potential factor for the reduction of price drift after earnings announcements.These findings have important implications for the Chinese capital market reform.The policy implications of this paper are mainly in the following three aspects: First,institutional investors should be encouraged to participate in the shareholding of firms,strengthen the role of institutional investors as professional investors in the market,reduce information asymmetry,and reduce investors’ limited attention and information search cost;second,on the premise of maintaining market stability,expand the breadth and depth of capital market openness,reduce market friction,and improve the valuation level of stock prices with the help of the trading choices of different types of investors in the market;finally,optimize information surroundings.From the perspective of the firm,firms should take the initiative to improve the quality of information disclosure,not to conceal bad news,and not to accumulate market risks.From the perspective of authority,it is necessary to further strengthen the reform of the trading system,improve the information environment of the capital market,and improve the ability of investors to obtain information,mine and analyze information.This paper has three main innovations and contributions: First,this paper uses the initial analysts’ recommendations as a set of clean data to investigate the analyst’s recommendation drift,and preliminarily discuss the price drift after the corporate announcement and its driving mechanism.The conclusion of this paper enriches the research on the anomaly of price drift after company announcements in Chinese market,provides theoretical evidence of the improvement of market efficiency,and is helpful to the chinese market efficiency in the future.Second,this paper takes the reform and openness of Chinese capital market as a natural experiment,after controlling the potential endogenous problems,the PEADs decrease after the implement of the capital market reform and openness and this paper proves the limited attention and limited arbitrage are main drivers to the PEAD.This paper proves for the first time that information asymmetry is a determinant of price drift after corporate announcements in the chinese capital market through examing the changes in the PEAD and its driving mechanisms.These findings theoretically provide evidence of the chinese capital market reform and openness to improve market efficiency.Finally,through a new perspective,this paper uses the post-earnings announcement price drift as a reverse indicator to measure the efficiency of the capital market,and studies the changes in PEAD and its driving mechanisms after the implementation of China’s capital market reform and openness.Quantitatively evaluates the effect of the reform and openness of the capital market.Meanwhile,it also provides empirical support for regulatory authorities to formulate macro policies accurately,improve market efficiency,and improve resource allocation functions from a micro perspective.