Can Abnormally Low Volume Predict Negative Performance Prediction Errors?

The volume of transactions is not only an important subject for academic research in the academic world,but also an important analytical tool for investors to test practical results.A large number of theories and empirical evidences show that the volume-price relationship exists.The information theory model represented by Campbell et al.(1993)believes that information drives the change in volume.Why does the trading volume contain information on future asset price volatility? What information does the stock trading volume contain? The proportion of abnormal trading volume before the annual report is relatively high.What information is included in the abnormally low volume before the annual report?As a system innovation in China's capital market,the performance forecasting system aims to prevent the stock price from soaring and falling sharply before the earnings report is disclosed.Due to the uncertainty of earnings forecast,there is often a certain difference between the actual surplus and the forecast surplus,that is,the performance forecast error.The error propensity varies from country to country.Basi(1976)found that the US market generally has an overestimation tendency,that is,the actual surplus is lower than the forecast surplus,and Keesy(1991)finds that the UK market has an underestimation tendency.Pownall et al.(1993)and Cheng Weiqing(2003)found through empirical evidence that the performance forecast brought new information to the market,that is,the performance forecast has information content,and the market reaction to different types of performance forecast is inconsistent.Song lu et al.(2004),Yang Deming et al.(2006),Wang Zhenshan et al.(2010)studied the market response under different performance forecast types from the perspective of abnormal return rate.The study found that when the performance forecast type is good news,the performance forecast release period will get a positive abnormal return rate,and vice versa,it will get a negative abnormal return rate,and the bad news is more violent than the good news market reaction.However,it did not study the volume under different performance forecast types.Is the abnormal volume before the disclosure of the annual report an early response to the error in the performance forecast? Is the same type of abnormally Volume under different performance forecast types representing the same information about the performance forecast error?Miller(1977)suggested that when there are both short-selling restrictions and investor heterogeneity beliefs in the market,investors with negative news will choose to leave and optimistic investors will choose to continue trading,resulting in overvalued stocks and future return rate drops.The existence of short selling restrictions has led investors with negative news to stop trading,thus affecting the volume of transactions.Diamond et al.(1987)found that no news is bad news,and abnomally low volume indicates bad news for the company.Akbas(2016)from the perspective of unexpected earnings,The study found that the unusually low volume before the earnings report indicates that the company's actual surplus lower than expected,and that the low volume has a higher information content under short selling restrictions.That is,the correlation is more significant.Therefore,does the unusually low volume contain information about the error with the negative performance forecast?(The actual surplus is lower than the forecast surplus,This article defines as the negative performance forecast error.)namely,The unusually low volume before the disclosure of the annual report indicates that the actual earnings of the listed company are lower than the forecast surplus? Based on the previous questions,this paper will mainly study the correlation between abnormal low volume and negative performance forecast error,and whether this relationship is affected by short selling restrictions and whether it is affected by the type of performance forecast.This paper takes all listed companies that disclose performance forecasts from 2008 to 2017 as the research object,excluding *ST,ST,financial stocks and listed companies with missing data.Considering that the performance forecast is informative,it may affect the significant positive correlation between the abnormally low volume and the negative performance forecast error.So according to the type of performance forecast,the samples are divided into the whole sample,the good news sample and the bad news sample.Firstly,this paper studies the correlation between abnormally low volume before annual report disclosure and negative performance forecast error.Secondly,considering that short-selling restrictions may affect the empirical results,we add the proxy variable of shortselling restrictions to the empirical analysis to verify whether the empirical results have been strengthened.Then,regression analysis is made on the abnormally low volume and the cumulative excess return during the announcement period.Finally,the cumulative excess earnings during the announcement period and the performance forecast error are analyzed by regression analysis.After the above regression analysis,it is found that the abnormally low volume is significantly positively correlated with the negative performance forecast error,that is,the abnormally low volume indicates that the actual surplus is lower than the forecast surplus,and this relationship is not affected by the type of performance forecast.Unusually high volume is only significantly positively correlated with positive performance forecast errors under bad news sample.After adding the shortselling constraint variable,although the overall sample did not change significantly,the T value increased.The correlation coefficient between the good news sample and the bad news sample is significantly enhanced,indicating that under the shortselling constraint,the abnormally low volume has a higher information content.In addition,the abnormally low volume before the annual report disclosure is negatively correlated with the abnormal return rate in the announcement period,that is,the abnormally low volume indicates that the announcement period achieves a negative abnormal return rate.Exceptionally high volume does not indicate a positive abnormal return rate.Finally,the study finds that abnormal returns are positively correlated with performance forecast errors,which further proves the previous conclusions.