Asymmetric post announcement drift to good and bad news
Chen, XiaoHua Solomon, Edna Verousis, Thanos
Chen, XiaoHua
Solomon, Edna
Verousis, Thanos
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Publication Type
Journal article
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Supervisor
Publication Year
2016
Journal
International Journal of the Economics of Business
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Publication Volume
23
Publication Issue
2
Publication Begin page
183
Publication End page
198
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Abstract
This article investigates the post-announcement drift (PAD) of stock returns in the Chinese stock market. We use a sample of voluntary trading disclosures to test the hypothesis that an asymmetric PAD exists in a market in which managers are more likely to suppress negative news. We show that a pattern of short-term momentum and long-term reversal in returns persists for up to 250 trading days following the announcement of trading statements in the Chinese stock market. This finding is stronger for positive announcements in terms of the magnitude and the variance of stock returns. Our findings are in line with both Shin’s theoretical predictions and the credibility hypothesis, in which disclosure and asset returns are jointly determined and the adoption of a “sanitisation strategy” in information disclosure generates more volatile returns for firms issuing good news. Further, we show that the latter effect is more pronounced for firms which are partially state-owned, suggesting that they potentially receive more government support, a finding which is in line with the hypothesis that the incentive to suppress negative information is related to a country’s legal/judicial system.
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Keywords
Asymmetric Post-Announcement Drift, Voluntary Trading Disclosures, Disclosure Strategy, State Ownership, Chinese Stock Market