Research On The Influence Of Abnormal Stock Trading Volume On Stock Return Before Earnings Announcement

Earnings announcement is an important carrier for enterprises to transmit fundamental information to the market,which will affect investors’ expectations of the company’s valuation,and thus lead to changes in stock trading volume and price.Therefore,investors of all kinds pay close attention to the release of earnings announcement,and make investment decisions based on the information contained therein.At present,academic circles mainly focus on the content of earnings announcement and the market changes after the announcement,but ignore the abnormal trading behavior before the announcement and its potential impact.Realistic data shows that China’s A-share market often has an abnormally high turnover rate before earnings announcements.By analyzing the impact of abnormal trading volume before earnings announcements on post announcement stock price trends,and its relationship with fundamental information,we can verify whether the abnormal trading volume before earnings announcements in the A-share market induces speculation or promotes information symmetry,which is of great research significance for preventing speculative foam and improving the market mechanism.This paper combines earnings announcement information,trading volume and stock price together to verify the relationship between the abnormal trading volume in the week before the announcement and the excess return after the announcement to analyze investors’ speculative behavior.The perspective is novel,which enriches the research on the correlation between trading volume and stock return from the perspective of earnings announcement.Furthermore,this paper constructs regulatory variables from the company level factors(transaction costs,the company’s attention from institutions,and business complexity),and analyzes the investors’ speculative behavior before earnings announcement under different scenarios.It provides a new analytical perspective and empirical evidence to explain the impact of corporate characteristics on the formation mechanism of speculation.This paper finds that the abnormal trading volume before earnings announcement will significantly affect the level of excess return during earnings announcement.Among them,the abnormally high trading volume has a significant positive correlation with the excess return during the earnings announcement period,while the abnormally low trading volume has a significant negative correlation with the excess return during the earnings announcement period.However,the abnormally high trading volume before the earnings announcement did not contain fundamental information and did not reflect the information effect of the announcement.Its excess return during the earnings announcement may come from the fact that the high trading volume boosted the visibility of the subject matter and the excessive optimism of investors,which is an irrational trend following behavior.Due to the existence of short selling restrictions in China,the negative information owned by short sellers has not been included in the stock price in time.Under the abnormally low trading volume,investors are more rational,which may indicate that the market as a whole has negative expectations on the future fundamentals of the stock.Moreover,the abnormally high trading volume before the earnings announcement is a short-term speculation with great risk,which is likely to reverse in a short time after the announcement,thus making speculators face losses.Among them,the lower the transaction cost,the lower the company’s attention from institutions,and the higher the business complexity,the more obvious such speculation.To sum up,the abnormal trading volume of China’s A-share market before the earnings announcement is potentially speculative.The regulatory authorities can not only identify potential speculation in the A-share market by monitoring abnormally high trading volumes,but also focus on companies with low transaction costs,low institutional concern and high business complexity,strengthen supervision and give early warning in a timely manner.In addition,improving the quality of information disclosure,gradually improving the management mechanism of relevant market transactions and earnings announcements,and launching investor education are also effective means to reduce speculative foam.The conclusions of this paper are of reference significance in the current stage of emphasizing the legalization and marketization of the capital market,and are instructive for investors and regulators to identify and avoid potential speculative risks before earnings announcement by monitoring the trading volume and company characteristics.