Do Institutional Investors Exploit The PEAD Anomaly

As one of the most puzzling anomalies in the finance literature,the post earnings announcement drift has been lasted for a long time.Many scholars have proved that this anomaly also exists on the Chinese market.Undoubtedly,the discovery of the PEAD anomaly represents the most serious challenge to the Efficient Market Hypothesis(EMIH).Many domestic and foreign literatures have verified that the PEAD anomaly is sustainable and trading on it if profitable,so whether the investors exploiting this anomaly to trade is nota’ble.China’s fund industry has been booming since its establishment,and fund company has become an important member of the institutional investors.There are more and more fund products,and our residents has increasingly allocated more assets to this type of investment.Fund company is usually considered as a rational and efficient investor,understanding the behavior of fund company and the impact on the capital market efficiency is of important significance.Mutual funds in the developed market generally exploit the anomaly strategy to invest.The rapidly development of our fund market,and the increasing using of the quantitative investment technology gradually make it possible for us to study whether the fund company take advantage of the anomaly to invest.In the existing domestic research literature,we have not seen the study of the above-mentioned topic.Based on the earnings per share data of Chinese listed companies in 2006-2015,and fund company’s quarterly holdings data,for the first time,we examine whether the Chinese hand companies use PEAD anomaly to invest and the impact of the behavior on the capital market Our data is mainly from the Wind financial terminal information database and the CSMAR database.And the main findings of this article is as follows.First of all,we found that fund companies are indeed exploiting the anomaly to invest.The quarterly changes in fund ownership is positively related to the standard unexpected earnings.In addition,using the data of the fund quarterly holdings,we found that fund companies using the drift can get significant short-term cumulative excess return.Finally,we also found that the drift exploiting behavior of fund company speeds up the response of the stock price to current earnings information.This paper takes the PEAD anomaly and fund investment behavior into consideration together,expanding the research scope of PEAD anomaly,and it also enriches the research of fund investment behavior and its performance.Besides,we study whether the fund company use the anomaly to invest and the probable profitability of the strategy from the aspects of fund holdings,and then examine whether such behavior will in turn influence the market,making us increase the understanding of PEAD and the market price response process.Finally,this paper would provide some enlightenment for fund companies and individual investors to make investment strategies.