Author: Wong, Chak-ming
Title: To study the Hong Kong stock market efficiency through analysing earning announcement effect
Degree: M.Sc.
Year: 1998
Subject: Stock exchanges -- China -- Hong Kong
Stocks -- Prices -- China -- Hong Kong
Efficient market theory
Hong Kong Polytechnic University -- Dissertations
Department: Multi-disciplinary Studies
Department of Management
Pages: 108, [3] leaves : ill. ; 30 cm
Language: English
Abstract: This paper presented an empirical study which aimed to be a dissertation work in the M.Sc. in Management (Business) Course of Hong Kong Polytechnic University. The objective of this study was to conduct an event study on the Hong Kong Stock Market which was within the context of Efficient Market Hypothesis. This event study was a statistical test to measure the market response in terms of abnormal change in stock prices subject to earning announcement of listed companies. The responses of different companies which classified by their market capitalisation were compared. Evidence on the degree of efficiency of the Hong Kong Stock Market was revealed through this study. The Efficient Market Hypothesis (EMH) was concerned with how successful the market was in establishing securities' prices that reflect the worth of the securities. Fama (1970) identified three potential levels of efficiency, each level relating a specific set of information which was increasing more comprehensive than the previous one. The study presented in this paper fell within the level of semi-strong efficiency which stared that the market was efficient in the semi-strong sense if share prices responded instantaneously and without bias to newly published information. In such market, it became meaningless for financial analysts to study corporate financial reports and other information to try to identify those shares that were under priced. As in July 1996, the Hong Kong Stock Market was the eighth largest stock market in the world. Market capitalisation has been increased more than ten times and the number of listed companies had more than doubled in ten years' time. Advance electronic trading systems like "Automatic Order Execution and Matching System" and "Central Clearing and Settlement System" were launched to improve the trading efficiency and transparency. Hong Kong's favourable geographical location and strong link with China, excellent communication infrastructures, free market economy system, transparent regulatory framework, favourable tax regime and well established legal system had enabled her to become a leading international fund management centre. Facing the tremendous fund requirement for Mainland China's development, the Hong Kong Stock Market was ready to take this opportunity for further growth. Results of this study revealed certain characteristics of the market which would enable investors to know more about it. In this study, the earning announcement results of 347 companies listed in the Stock Exchange of Hong Kong were gathered. Three groups of companies were formed which were classified according to market capitalisation. In each group, there were 50 companies which had highest increase in earning per share in comparing with previous year. For each company in these groups, the daily closing prices for 100 days prior and 20 days after the announcement were collected. The abnormal response was measured in term of daily residual according to the Market Model. In order to provide statistical significant results, the average daily residuals for all stocks in each group were calculated and analysed. The results of this study indicated that the information of earning announcement affected the share prices promptly. In other words, the share prices adjusted speedily to reflect this information in the market. In addition, the results showed that companies of different scale had demonstrated dissimilar pattern of response to the announcement results. This could be attributed to investors' strategies of investment in different scale of companies. As a whole, the results of this study provided evidence to support that the Hong Kong Stock Market was efficient in semi-strong form.
Rights: All rights reserved
Access: restricted access

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