Post-Earnings Announcement Drift in China's A-Share Market: An Integrated Analysis

Abstract

This paper examines the Post-Earnings Announcement Drift (PEAD) in the Chinese A-share market. As an overview of the researches carried out from 2011 to 2023 for evaluating why this significant anomaly is still economically and theoretically relevant in emerging countries. As a prevalent market anomaly, PEAD refers to the persistent directional deviation of stock prices following corporate earnings releases. Classical models cannot explain PEAD well. Even after continuous improvements in market reform and development of trade infrastructure, the delay in reflected reaction has yet to fully reconcile with established theories. To explain such persistent inefficiency, this paper constructs a framework combining psychology and structure. Investor inattention explains the under-reaction to earnings. Structural constraints, such as short-sale restrictions, prevent the arbitrageurs from correcting mispricing. Furthermore, based on the above analysis results, different kinds of environmental conditions have been identified to cause changes by means of drifts. Empirical evidence indicates that, recent studies have found that institutional investors may not eliminate this anomaly but rather strengthen or amplify it due to momentum herd behavior in a high-transparent situation. Finally, in terms of understanding behavioural finance at multiple angles through this model; thus possessing considerable value for both theory and practice.