Capital Market Reaction to Additional Information: Market Feedback Versus Signaling Effect?

Abstract

The association with information and capital market has long been thought as a potential research field for the Accounting and Finance, which are considered as one of the Puzzles-whether due to transfer the future performance effectively or market feedback by message itself? From this article about prospective financial information, market reaction to additional (explicit implicit) information had been verified using regression model. By virtue of excess turnover rates, it aims to analyze, test and interpret signaling effect. Additional information will be found to burst market reaction while I look at two competing hypotheses to explain this reaction. The first hypothesis is signaling hypothesis that assumes the insiders of information advantage to prevent market failure, and reduce information asymmetry; the second competing hypothesis assumes that the market transmits to users their valuation of the company. The main finding is to identify two conclusions: first, that cumulative abnormal return was significantly related with explicit additional information rather than implicit information. Second, as China market's unique system or institute, the two alternative hypotheses can not be fully compatible, but no absolute exclusion. Before the announcement market feedback effect is probably existed, but the signaling hypothesis has a comparative advantage, is superior to support market feedback hypothesis.

Keywords: signaling, market feedback, additional information, market reaction

JEL Classification: G38, M41