An Empirical Test on Reaction of China Stock Market to Earnings Information

The earnings announcements are chosen as the events for testing whether China stock market overreacts to the earnings information. The winner portfolio and loser portfolio are divided according to the earning changing index. The earning change of the listed companies are considered. The cumulated abnormal returns of the portfolio 1-year and 3-year after the annual reports are tested. This paper makes an empirical test using the data of Shenzhen stock market and Shanghai stock market from 1992 to 2000. It is shown that there is no overreaction to the earnings information in relatively long period. Which is different from the foreign stock markets. The empirical results are explained by further investigating the characteristics of China stock market.