Post-Earnings Announcement Drift in Multimarket Setting

This paper investigates the post-earnings announcement drift (PEAD) in the multiple markets and finds its determinants in an international setting. Using the Shenzhen-Hong Kong Connect, we investigate whether and how an exogenous event in the segmented markets affect the post earnings announcement drift in the multimarket setting. We find that the PEAD declines after the launch of Shenzhen-Hong Kong Connect in both A-share market and Hong Kong market. Then, we further investigate the multifactorial causes of the PEAD and our findings suggest that the PEAD is directly driven by investors’ limited attention and limits to arbitrage. These findings support the mispricing explanation of the PEAD in multimarket setting. We also find that the improvement of liquidity and volatility influences the determinants of the PEAD. Finally, our findings provide the evidence that the information asymmetry is the potential cause of the PEAD.