STOCK RETURNS, AGGREGATE EARNINGS SURPRISES, AND BEHAVIORAL FINANCE
We study the stock market reaction to aggregate earnings news. Previous research shows that, for individual firms, stock prices react positively to earnings news but require several quarters to fully reflect the information in earnings. We find that the relation between returns and earnings is su...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | en_US |
| Published: |
2003
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| Online Access: | http://hdl.handle.net/1721.1/1829 |
| _version_ | 1826197724126511104 |
|---|---|
| author | Kothari, S.P. Lewellen, Jonathan Warner, Jerold |
| author_facet | Kothari, S.P. Lewellen, Jonathan Warner, Jerold |
| author_sort | Kothari, S.P. |
| collection | MIT |
| description | We study the stock market reaction to aggregate earnings news. Previous research shows that,
for individual firms, stock prices react positively to earnings news but require several quarters
to fully reflect the information in earnings. We find that the relation between returns and
earnings is substantially different in aggregate data. First, returns are unrelated to past
earnings, suggesting that prices neither underreact nor overreact to aggregate earnings news.
Second, aggregate returns are negatively correlated with concurrent earnings; over the last 30
years, stock prices increased 6.5% in quarters with negative earnings growth and only 1.9%
otherwise. This finding suggests that earnings and discount rates move together over time, and
provides new evidence that discount-rate shocks explain a significant fraction of aggregate
stock returns |
| first_indexed | 2024-09-23T10:52:09Z |
| format | Working Paper |
| id | mit-1721.1/1829 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T10:52:09Z |
| publishDate | 2003 |
| record_format | dspace |
| spelling | mit-1721.1/18292019-04-11T09:45:33Z STOCK RETURNS, AGGREGATE EARNINGS SURPRISES, AND BEHAVIORAL FINANCE Kothari, S.P. Lewellen, Jonathan Warner, Jerold We study the stock market reaction to aggregate earnings news. Previous research shows that, for individual firms, stock prices react positively to earnings news but require several quarters to fully reflect the information in earnings. We find that the relation between returns and earnings is substantially different in aggregate data. First, returns are unrelated to past earnings, suggesting that prices neither underreact nor overreact to aggregate earnings news. Second, aggregate returns are negatively correlated with concurrent earnings; over the last 30 years, stock prices increased 6.5% in quarters with negative earnings growth and only 1.9% otherwise. This finding suggests that earnings and discount rates move together over time, and provides new evidence that discount-rate shocks explain a significant fraction of aggregate stock returns 2003-02-20T22:02:49Z 2003-02-20T22:02:49Z 2003-02-20T22:02:49Z Working Paper http://hdl.handle.net/1721.1/1829 en_US MIT Sloan School of Management Working Paper;4284-03 386401 bytes application/pdf application/pdf |
| spellingShingle | Kothari, S.P. Lewellen, Jonathan Warner, Jerold STOCK RETURNS, AGGREGATE EARNINGS SURPRISES, AND BEHAVIORAL FINANCE |
| title | STOCK RETURNS, AGGREGATE EARNINGS SURPRISES, AND BEHAVIORAL FINANCE |
| title_full | STOCK RETURNS, AGGREGATE EARNINGS SURPRISES, AND BEHAVIORAL FINANCE |
| title_fullStr | STOCK RETURNS, AGGREGATE EARNINGS SURPRISES, AND BEHAVIORAL FINANCE |
| title_full_unstemmed | STOCK RETURNS, AGGREGATE EARNINGS SURPRISES, AND BEHAVIORAL FINANCE |
| title_short | STOCK RETURNS, AGGREGATE EARNINGS SURPRISES, AND BEHAVIORAL FINANCE |
| title_sort | stock returns aggregate earnings surprises and behavioral finance |
| url | http://hdl.handle.net/1721.1/1829 |
| work_keys_str_mv | AT kotharisp stockreturnsaggregateearningssurprisesandbehavioralfinance AT lewellenjonathan stockreturnsaggregateearningssurprisesandbehavioralfinance AT warnerjerold stockreturnsaggregateearningssurprisesandbehavioralfinance |