STOCK MARKET REACTION TO EARNINGS ANNOUNCEMENT: AN EVIDENCE FROM HEALTHCARE INDUSTRY IN SHANGHAI STOCK MARKET
Keywords:
Efficient Market Hypothesis, Post-Earnings Announcement Drift, Event Window Study, Stock Market reaction, Abnormal returnsAbstract
The purpose of this dissertation is to investigate how stock price reacts to annual earnings announcement in Shanghai stock exchange stock market from 2013-2017. The annual report is one of the most important periodical reports for listed companies and is also one of the most important public information to public investors. The annual report disclosures the listed company's business condition and financial status of the previous year and has great significance for the investor’s expectation of the profitability of the company's future.
According to the Efficient Market Hypothesis (EMH), when the market is a semi-strong efficient market, investors cannot get the abnormal return through the public information, all publicly available information could quickly react on the changes of the stock price. But since Ball, and Brown (1968) found the phenomenon of the post-earning- announcement Drift (PEAD), the scholars proved the PEAD through various methods, and explained the reason of the PEAD through different ways such as information lag, investor behaviour deviations. As for the PEAD in Chinese stock market, a lot of research have been done by domestic scholars, and scholars explained from different aspects such as information quality and media attention and so on. This paper is in view of the Annual Report of the Market of Shanghai stock market, and studies the impact of annual report announcement on stock abnormal returns.
This study conducts an event window study and separates all announcement into good and bad news portfolios. It examines that investor tend to overreact to positive announcement but underreact to negative information in pre-announcement period.
Meanwhile, it observes the phenomenon of post earnings announcement drift for both portfolios. Findings present significant abnormal return arising during observation window and it is not consistent with the principle of efficient market hypothesis.
