بازگشت اعلام وصول درآمد غیر طبیعی در بازار سهام چینی
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|12609||2011||25 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of International Financial Markets, Institutions and Money, Volume 21, Issue 5, December 2011, Pages 637–661
This study examines the profitability of trading on earnings surprises in the post-earnings-announcement period in the Chinese stock market from 1994 to 2009. We find that a post-earnings-announcement drift (PEAD) anomaly exists in China. When earnings surprise is defined relative to analyst forecasts, a hedge strategy of going long the top quintile of earnings surprise stocks and short the bottom quintile of earnings surprise stocks can generate around 9.5% excess return in 1 year following the earnings announcements. When earnings surprise is defined relative to time-series model forecasts, a hedge strategy of going long the top quintile of earnings surprise stocks and short the bottom quintile of earnings surprise stocks can generate around 9% excess return in 1 year following the earnings announcements. The return from trading on earnings surprise is robust to the inclusion of beta, firm size, book-to-market ratio, momentum, liquidity and transaction cost measures, state ownership, cross-listing and accounting standards. There is evidence that the magnitude of PEAD increases in the level of arbitrage risk and decreases in the level of foreign ownership. We also find that PEAD is strongly related to firms’ future financial performance.
This study investigates stock returns subsequent to large earnings surprises in China with earnings surprises defined relative to either analyst consensus forecasts or time-series model forecasts. We find that firms with large positive (negative) earnings surprises exhibit significant positive (negative) abnormal returns up to 1 year subsequent to the earnings announcements. Specifically, a hedge portfolio that takes a long position in the top quintile of earnings surprises and a short position in the bottom quintile of earnings surprises returns more than 9% in the year following the earnings announcements. The relation between earnings surprises and post-earnings-announcement abnormal returns is robust to controls for several firm characteristics and risk factors such as beta, firm size, book-to-market ratio, price momentum, trading liquidity, transaction costs, state ownership, cross-listing, and accounting standards under which earnings are prepared. There is strong evidence that the price-earnings relation in the post-earnings-announcement period is more eminent when arbitrage risk, as proxied by the idiosyncratic volatility of stock returns, is high or when an earnings surprise is negative. We interpret these findings as impediments to arbitrage activities and the lack of short-selling activities in the Chinese equity markets partially driving post-earnings-announcement abnormal returns. We also document that the price-earnings relation in the post-earnings-announcement period is lessened when foreign ownership of a firm is high. This finding is consistent with the argument that foreign ownership is associated with more transparent information environment and foreign investors are more prompt than domestic investors in response to new information, yielding more efficient assimilation of earnings information into stock prices. Lastly, we show that current earnings surprises are highly predictive of future financial performance in the following year. Hence, post-earnings-announcement abnormal returns may also represent rewards for future firm performance in the Chinese equity markets. The seminal study by Ball and Brown (1968) was the first to document that after earnings are announced, cumulative abnormal returns continue to drift upward for positive earnings surprises, and downward for negative earnings surprises. The post-earnings-announcement drift (hereafter PEAD or drift), also commonly referred to as the standardized unexpected earnings (SUE) effect, appears to be a persistent feature of stock returns, at least pertaining to evidence from the United States security markets.1 The extant literature offers three proposals for explanation of PEAD: (1) the drift is an artifact of methodological shortcomings in the research studies that document the phenomenon (Ball et al., 1993 and Jacob et al., 2000); (2) there is an increase in the risk of companies experiencing extreme earnings surprises and the drift represents fair compensation for higher expected return in equilibrium (Ball et al., 1993); (3) investors under-react to value relevant information from earnings announcements or they process the information with a significant delay (Bernard and Thomas, 1989, Bernard and Thomas, 1990, Kothari, 2001 and Chordia and Shivakumar, 2005).2 While the bulk of PEAD literature focuses on the US markets, investigations of PEAD have gradually expanded to other markets outside the United States. Hew et al. (1996) document preliminary evidence that PEAD is present among small firms but not among large firms from a limited sample of 206 companies listed in the London stock exchange over the period 1988–1993. Liu et al. (2003) revisit the topic by employing a larger and more comprehensive sample of 835 firms listed in the London stock exchange over the period 1988–1998 and report that there are significant drifts following earnings announcements of UK firms, regardless of firm size. Booth et al., 1996 and Booth et al., 1997 show that post-earnings-announcement abnormal returns are exceedingly higher for positive earnings surprise than for negative earnings surprise in the Helsinki stock exchange. These authors also relate PEAD to several interesting unique features of the Finish market. For example, Booth et al. (1996) find that PEAD is stronger for firms that do not have smooth income series and suggest that PEAD in the Finish market is partially caused by the delay associated with information processing costs.3Booth et al. (1997) report that PEAD is stronger for firms that make significant adjustments for tax purposes because tax adjustments often imply that earnings are of larger magnitude.4Mande and Kwak (1996) investigate the response of Japanese analysts to earnings information and document significant evidence of under-reaction, leading to PEAD in Japan. The authors further show that under-reaction is more pronounced for earnings prepared under US GAAP than for earnings prepared under Japanese GAAP because US GAAP discounts information in current earnings of Japanese firms. A recent study by Truong (2010) documents that PEAD is also a resilient phenomenon in the New Zealand stock exchange over the period 1994–2008 and that PEAD is stronger for negative earnings surprise than for positive earnings surprise. The author attributes this asymmetry in PEAD to the binding short-sales constraints in the New Zealand equity market. Strong growth in the Asia-Pacific economies and financial markets has created a rising tide of research focusing on this region. Despite this surge, investigations of PEAD for this region still remain relatively dormant. We address this deficiency by examining the performance of security returns following earnings announcements in China, one of the most exciting major Asia-Pacific security markets. Such an examination is belatedly warranted as financial research is increasingly directed towards the burgeoning markets of China. First, China has become one of the fastest growing economies and capital markets in the world. Since the inception of the Chinese stock markets in 1990, the total capitalization of both the Shanghai and Shenzhen stock exchanges has grown to more than 50% of the country's GDP (MacNeil, 2002).5 This places China ahead of most European countries other than the United Kingdom in terms of the importance of capital markets to the economy (Maher and Andersson, 2000). The sheer size and enormous growth opportunities of the Chinese security markets have grabbed significant attention and participation from international investors in recent years (Wang and Chin, 2004). In addition, the gradual opening of the Chinese capital markets to international investors also results in a significant share of the Chinese economy being held by global portfolio managers. The highlighted significance of the Chinese capital markets therefore increasingly calls for thorough examinations of the informational efficiency in these markets, which is the focus of our study.6 Second, the Chinese capital markets have been reported to have several unique attributes that challenge traditional asset pricing models and the theory of rationality. For example, Kang et al. (2002) report that China is one of the few countries that are negatively correlated with the United States security markets. The authors suggest that a lack of rigorous stock analysis and research may have led to the observation that stock prices in China are driven by investor sentiment as much as by other factors.7Gong (2003) shows that Chinese society is more collective oriented and can be characterized by a set of Confucian principles such as conservatism and moderation. Because of their unique cultural backgrounds, Chinese investors behave differently from Western investors in the investment decision making process. For example, Chen et al. (2007) show that Chinese investors exhibit a great extent of the “disposition effect” of selling stocks that have increased in value and holding on to stocks that have been decreasing in value. The authors suggest that this phenomenon can be attributed to the Confucian doctrines that discourage “risk taking” and promote “self-control” and makes it longer for stock prices to reach their fundamental values. The slow information travel coupled with other characteristics of Chinese stock exchanges such as a daily price change limit and an absence of short-selling activities may impinge on the stock price discovery to large earnings surprises and hence are likely to have a material impact on the information efficiency of these exchanges.8 Third, Chinese stock markets have generally been dominated by the trading activities of small retail investors, since these investors own more than 90% of tradable shares (Wang et al., 2005).9 This particular attribute provides a lucid motivation to examine PEAD in this market. Hand (1990) proposes that the likelihood that stock price properly reflects a certain type of information depends on the probability that the marginal investor is sophisticated rather than naïve.10 The author also suggests that small retail investors are more naïve while institutional investors are more sophisticated in interpreting and acting on financial information. Following this argument, it is probable that the principal trading activities of small retail investors and an under-representation of institutional investors in the Chinese stock markets portend a less efficient incorporation of accounting earnings information into stock prices. The remainder of the paper proceeds as follows: Section 2 presents the data, motivation, and variable definitions used in the paper, as well as the research methodology. Section 3 presents empirical findings and Section 4 provides a summary and conclusion.
نتیجه گیری انگلیسی
This study examines the abnormal returns in the Chinese equity markets in the period immediately after the earnings announcements. We document that earnings surprises, whether defined relative to analyst consensus forecasts or to the time-series model forecasts, are highly predictive of the post-earnings-announcement abnormal stock returns. Specifically, a hedge trading strategy of going long the top quintile of earnings surprise stocks and going short the bottom quintile of earnings surprise stocks generates up to 9% in the 1 year following the earnings announcements. We find that the magnitude of the drift increases with a stock's idiosyncratic volatility. This finding is consistent with the argument in Wurgler and Zhuravskaya (2002), that high idiosyncratic volatility impedes arbitrage activities on mispricing opportunities. We also find that the magnitude of the drift decreases in the level of foreign ownership, particularly in the later years. This finding is consistent with the notion that foreign investors are more prompt in responding to new information than domestic investors and foreign investors place pressure for a more transparent information environment which supports faster stock price discovery. We show that current earnings surprise can also predict the stock price response to future earnings announcements. Findings in our study point towards the proposition that there is a significant delayed response to earnings information in the Chinese markets. In addition, the market does not efficiently incorporate the implications of current earnings for future earnings announcements. When controlling for the magnitude of earnings surprise, we find that negative earnings surprises generally generate larger drift than positive earnings surprises. We attribute this finding to the inherent short sale constraints in the Chinese equity markets. We also show that earnings surprises are closely tied to current firm performance. More importantly, there is strong evidence that firm performance continues in the direction of earnings surprises up to 1 year following the earnings announcements. Thus, it is also possible that abnormal returns in the post-earnings-announcement period represent compensations for future firm performance. Our study provides initial evidence on the relation between accounting earnings information and the security price discovery in the Chinese markets. Our study's findings have several important implications for future research in this area. The increased visibility and enormous growth opportunities of the Chinese markets in recent years have attracted greater participation from both international and local institutional investors. If institutional investors are more sophisticated in interpreting financial information and trade on earnings information, it is interesting to examine, provided that data on institutional investor holdings and trading are available, whether the presence of institutional investors leads to a mitigation of the PEAD phenomenon. In 2009, the Chinese market introduced a trial program of short selling and margin trading in an attempt to increase the types of financial instruments available to investors.30 If short-selling activities are allowed and supported in the Chinese markets, researchers can examine whether a removal of short-selling constraints can reduce or eliminate the asymmetry in the drifts associated with negative and positive earnings surprises. We hope future research will offer additional insights into the role of accounting earnings in the Chinese markets.