The Earning Persistence of High Tech Enterprise and Market Efficiency of China Capital Market

Abstract

The paper investigates the extent to which current earnings performance persists into future is depended on the components of earnings and try to find out whether stock price reflects the information of earnings. Comparing to accrued components of earnings, cash flow components of earnings substantially has more explanatory ability for abnormal returns and with higher persistence, especially for high tech industry. Eventually we find that investors’ inability to distinguish correctly between the components of earnings. Constructing a portfolio based on the magnitudes of accrued components of earnings, we can earn 4% and 13% of excess returns for high tech industry and general industry.