Abstract: This paper focuses on the limited arbitrage and post-earnings-announcement drift in China's stock market. The misprisions existing is conflicting with efficient market,so we think that the arbitrage is facing to the limits,the abnormal return may be corresponding to higher risk,cost or investor sophisticanon. Based on the above hypothesis,we use the proxy of trading risk,cost to test the relations between PEAD and limit arbitrage. The results show that the mis-pricing is positive with arbitrage risk and cost and is negative with the investor sophistication,which is consistent with the institutional investor getting profit from the PEAD.

Key words: PEAD, limited arbitrage, arbitrage risk, transaction cost, investor sophistication