The Leaders' Shadow: Excessive Information Spillover in the Chinese Stock Market

This study investigates information spillover from industry leaders to peer firms during the leaders' earnings announcements (EAs) in the Chinese stock market. We find a positive information spillover, which is subsequently corrected when peers announce their own earnings, indicating excessive information spillover (overreaction). We further identify several reasons for the overreaction: (1) investors' overweighing of leaders' earnings in evaluating peers' earnings; (2) investors' abnormal searching and trading behaviours, particularly among retail investors; and (3) peer firms' poor information environment and limits to arbitrage. These findings suggest that overreaction could be more prominent in less mature, retail investor-dominated markets like China.