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Asymmetric post-announcement drift to good and bad news: evidence from voluntary trading disclosures in the Chinese stock market

Asymmetric post-announcement drift to good and bad news: evidence from voluntary trading disclosures in the Chinese stock market

Chen, XiaoHua, Solomon, Edna M. and Verousis, Thanos (2015) Asymmetric post-announcement drift to good and bad news: evidence from voluntary trading disclosures in the Chinese stock market. International Journal of the Economics of Business. ISSN 1357-1516 (Print), 1466-1829 (Online) (doi:10.1080/13571516.2015.1048974)

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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.

Item Type: Article
Uncontrolled Keywords: asymmetric post-announcement drift; vountary trading disclosures; disclosure strategy; state ownership; Chinese stock market;
Faculty / Department / Research Group: Faculty of Business > Greenwich Political Economy Research Centre (GPERC)
Faculty of Business > Department of International Business & Economics
Last Modified: 21 Apr 2017 14:26
Selected for GREAT 2016: GREAT a
Selected for GREAT 2017: None
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/13795

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