Market Reaction to Local Attention around Earnings Announcements in China: Evidence from Internet Search Activity

Qian Chen, Xiang Gao (), Jianming Mo and Zhouling Xu
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Qian Chen: Department of Economics, Shenzhen MSU-BIT University, 1 International University Park Road, Dayun New Town, Longgang District, Shenzhen 518172, China
Xiang Gao: Research Center of Finance, Shanghai Business School, 2271 West Zhongshan Road, Xuhui District, Shanghai 200235, China
Jianming Mo: Institute of Chinese Finance Studies, Southwestern University of Finance and Economics, 55 Guanghuacun Street, Qingyang District, Chengdu 610074, China
Zhouling Xu: Hebei Jiaotou Investment Management Co., Ltd., 52 North Xinshi Road, Qiaoxi District, Shijiazhuang 050091, China

IJFS, 2022, vol. 10, issue 4, 1-26

Abstract: The existing literature shows that, due to locality and familiarity, spatial investor–firm adjacency plays a key role in determining stock investor attention, as proxied by the location where investors initiate an Internet search of the ticker symbol. This paper investigates whether Chinese stock markets exhibit the same pattern observed in the U.S. market—demand for a firm’s information can exert strong effects on the stock market response during earnings announcements of the firm. Specifically, for each Chinese publicly listed firm, this paper constructs a dynamic local attention ratio that divides the search volume generated within the province where the firm is registered by the contemporaneous nationwide search volume consisting of 31 provinces in total. During 2011–2018 in China’s A-share market, it was found that the local attention measure leads the market response around annual earnings announcement dates. For firms with higher local attention, trading is more active before the announcement, and the price changes can better predict incoming earnings news. At the announcement, while trading remains active, the predictivity of price changes for earnings becomes weaker. Furthermore, we only found evidence that supports the local information advantage argument in explaining the locality of Chinese investors’ attention.

Keywords: investors’ limited attention; local bias; search volume index; earnings announcement; market response (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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