Investor limited attention, opinion divergence, and post-earnings-announcement drift: Evidence from China

Hao SHU, Weiqiang TAN

Research output: Contribution to journalArticlespeer-review

5 Citations (Scopus)

Abstract

The study provides new evidence for the limited attention theory in explaining post-earnings-announcement drift (PEAD) by using the data of stocks listed in Shanghai and Shenzhen A-shares from 2000 to 2020. We introduce two types of inattentive investors: one ignores the market or industry information, while the other ignores the dividend information in a theoretical model and show that the effect of investors’ opinion divergence induced by inattentive investors drives the post-earnings-announcement drift (PEAD). The empirical test supports the testable hypothesis based on the model. When investors’ expectations of future stock prices are more inconsistent, the PEAD effect is more significant after the earnings announcement. Furthermore, the findings remain robust after a series of robustness tests, including the transformation of the variable definitions and the replacement of the study interval. And this positive relationship between opinion divergence and PEAD is more significant in the groups with low information transparency and poor corporate governance. The study provides new and direct evidence of investors’ concerns about the impact of market efficiency and regulators’ recommendations to promote the long-term development of China’s financial markets. Copyright © 2022 The Author(s).

Original languageEnglish
Pages (from-to)3985-4000
JournalEmerging Markets Finance and Trade
Volume58
Issue number14
Early online dateJun 2022
DOIs
Publication statusPublished - 2022

Citation

Shu, H., & Tan, W. (2022). Investor limited attention, opinion divergence, and post-earnings-announcement drift: Evidence from China. Emerging Markets Finance and Trade, 58(14), 3985-4000. doi: 10.1080/1540496X.2022.2079975

Keywords

  • Post-earnings-announcement drift (PEAD)
  • Limited attention
  • Opinion divergence

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