Subsequent Excess Returns after Loss Warning Announcement in China's Stock Market
26 Pages Posted: 5 May 2002
Date Written: April 2002
The loss warning announcement in China's stock market causes stock price to drop about 3 percent during announcement periods. However, the subsequent medium-term returns after loss warning announcement are significantly positive. For example, cumulative abnormal returns (CARs) from event day 2 to 60 are 7.81%, on average. Previous literature shows that investors may underreact to earnings information (Bernard and Thomas 1989) or overreact to earnings information (DeBondt and Thalor 1985). The return reversal pattern around loss warning announcement supports the overreaction hypothesis, so does the result from cross-sectional regressions.
Keywords: announcement effects, loss warning, underreaction, overreaction
JEL Classification: G14, M41
Suggested Citation: Suggested Citation