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1.
This paper studies the effects of predictability on the earnings–returns relation for individual firms and for the aggregate. We demonstrate that prices better anticipate earnings growth at the aggregate level than at the firm level, which implies that random-walk models are inappropriate for gauging aggregate earnings expectations. Moreover, we show that the contemporaneous correlation of earnings growth and stock returns decreases with the ability to predict future earnings. Our results may therefore help explain the apparently conflicting recent evidence that the earnings–returns relation is negative at the aggregate level but positive at the firm level.  相似文献   

2.
We examine the predictive ability of stock price ratios, stock return dispersion and distribution measures for firm level returns. Analysis typically focusses on market level returns, however, for the underlying asset pricing model to hold, firm-level predictability should be present. Additionally, we examine the economic content of predictability by considering whether the predictive coefficient has the theoretically correct sign and whether it is related to future output growth. While stock returns reflect investor expectations regarding future economic conditions, they are often too noisy to act as predictor. We use the time-varying predictive coefficient as it reflects investor confidence in the predictive relation. Results suggest that a subset of stock price ratios have predictive power for individual firm stock returns, exhibit the correct coefficient sign and has predictive power for output growth. Each of these ratios has a measure of fundamentals divided by the stock price and has a positive relation with stock returns and output growth. This implies that as investors expect future economic conditions to improve and earnings and dividends to rise, so expected stock returns will increase. This supports the cash flow channel as the avenue through which stock return predictability arises.  相似文献   

3.
Prior research documents that volatility spreads predict stock returns. If the trading activity of informed investors is an important driver of volatility spreads, then the predictability of stock returns should be more pronounced during major information events. This paper investigates whether the predictability of equity returns by volatility spreads is stronger during earnings announcements. Volatility spreads are measured by the implied volatility differences between pairs of strike price and expiration date matched put and call options and capture price pressures in the option market. During a two-day earnings announcement window, the abnormal returns to the quintile that includes stocks with relatively expensive call options is more than 1.5% greater than the abnormal returns to the quintile that includes stocks with relatively expensive put options. This result is robust after measuring volatility spreads in alternative ways and controlling for firm characteristics and lagged equity returns. The degree of announcement return predictability is stronger when volatility spreads are measured using more liquid options, the information environment is more asymmetric, and stock liquidity is low.  相似文献   

4.
We use option prices to examine whether changes in stock return skewness and kurtosis preceding earnings announcements provide information about subsequent stock and option returns. We demonstrate that changes in jump risk premiums can lead to changes in implied skewness and kurtosis and are also associated with the mean and variability of the stock price response to the earnings announcement. We find that changes in both moments have strong predictive power for future stock returns, even after controlling for implied volatility. Additionally, changes in both moments predict call returns, while put return predictability is primarily linked to changes in skewness.  相似文献   

5.
More Than Words: Quantifying Language to Measure Firms' Fundamentals   总被引:3,自引:0,他引:3  
We examine whether a simple quantitative measure of language can be used to predict individual firms' accounting earnings and stock returns. Our three main findings are: (1) the fraction of negative words in firm-specific news stories forecasts low firm earnings; (2) firms' stock prices briefly underreact to the information embedded in negative words; and (3) the earnings and return predictability from negative words is largest for the stories that focus on fundamentals. Together these findings suggest that linguistic media content captures otherwise hard-to-quantify aspects of firms' fundamentals, which investors quickly incorporate into stock prices.  相似文献   

6.
The value‐growth effect is one of the most pervasive patterns in stock prices. In this study, the ability of four proxies for value‐growth, book‐to‐market, sales‐to‐price, earnings‐to‐price and cash‐flow‐to‐price to explain equity returns is analysed. The findings show that in aggregate, book‐to‐market best explains cross‐sectional variation in Australian equity returns, which in isolation suggests that it is the superior proxy for value‐growth. The analysis is taken further and the value‐growth effect is examined separately in positive and negative earnings firms. After segregating firms, it is found that in the negative earnings sample, book‐to‐market is the best value‐growth proxy and in the positive earnings sample, cash‐flow‐to‐price has the highest level of significance and is thus the superior value‐growth proxy. The economic significance of this result is telling, as the firms that report positive earnings are much larger than those that report negative earnings.  相似文献   

7.
We test the theoretical relation between idiosyncratic return volatilities and the volatilities of cash-flow news based on the expected returns on equity (ROE) for CRSP stocks over the period 1977–2008. Consistent with economic intuition, we find that using analyst forecasts of earnings is superior to using realized earnings to proxy for market expectations about future cash flow news. Our findings are consistent with a market where stock return volatilities are positively and asymmetrically related to changes in the volatilities of expectations for a fundamental driver of cash flow news (ROE). Our findings are robust after correcting for forecast biases, various fundamental variables, newly-listed and mature firms, and periods with and without earnings announcements.  相似文献   

8.
This study examines the adaptive market hypothesis in the S&P500, FTSE100, NIKKEI225 and EURO STOXX 50 by testing for stock return predictability using daily data from January 1990 to May 2014. We apply three bootstrapped versions of the variance ratio test to the raw stock returns and also whiten the returns through an AR-GARCH process to study the nonlinear predictability after accounting for conditional heteroscedasticity through the BDS test. We evaluate the time-varying return predictability by applying these tests to fixed-length moving subsample windows and also examine whether there is a relationship between the level of predictability in stock returns and market conditions. The results show that there are periods of statistically significant return predictability, but also episodes of no statistically significant predictability in stock returns. We also find that certain market conditions are statistically significantly related to predictability in certain markets but each market interacts differently with the different market conditions. Therefore our findings suggest that return predictability in stock markets does vary over time in a manner consistent with the adaptive market hypothesis and that each market adapts differently to certain market conditions. Consequently our findings suggest that investors should view each market independently since different markets experience contrasting levels of predictability, which are related to market conditions.  相似文献   

9.
We document that earnings downside risk contains information on firms' future operating performance and is positively associated with expected stock returns in Chinese stock markets, and the return predictability of earning downside risk mainly comes from its accrual downside risk component. The pricing of earnings downside risk is especially evident among firms with more transparent information environment and stronger governance efficacy, such as large firms, non-high-tech firms, old firms, and firms with high analyst coverage. Lastly, we show that aggregated earnings downside risk and its components at the market level are all significantly and positively associated with subsequent stock market returns, which is consistent with the notion that the accounting-based downside risk measures contain information about future macroeconomic conditions.  相似文献   

10.
Prior literature finds that information is reflected in option markets before stock markets, but no study has explored whether option volume soon after market open has predictive power for intraday stock returns. Using novel intraday signed option-to-stock volume data, we find that a composite option trading score (OTS) in the first 30 min of market open predicts stock returns during the rest of the trading day. Such return predictability is greater for smaller stocks, stocks with higher idiosyncratic volatility, and stocks with higher bid–ask spreads relative to their options’ bid–ask spreads. Moreover, OTS is a significantly stronger predictor of intraday stock returns after overnight earnings announcements. The evidence suggests that option trading in the 30 min after the opening bell has predictive power for intraday stock returns.  相似文献   

11.
We document that acquiring firms are more likely than nonacquiring firms to split their stocks before making acquisition announcements, especially when acquisitions are financed by stock and when the deals are large. Our findings support the hypothesis that some acquiring firms use stock splits to manipulate their equity values prior to acquisition announcements. Using earnings quality as a proxy for firms' intention to manipulate, we find that acquirers with low earnings quality (i.e., acquirers that are more likely to use stock splits to manipulate their stock values) have lower long‐run stock returns compared with their benchmarks, especially when the deals are financed with stock. In contrast, acquirers with high earnings quality do not show that pattern. Our evidence complements and extends the findings in the literature that some acquirers manipulate their stock prices before stock‐swap acquisitions. This study suggests that target shareholders should use information such as earnings quality and stock splits to discriminate among acquirers and ensure that exchanges are conducted on fair terms.  相似文献   

12.
This paper makes three contributions to the literature on forecasting stock returns. First, unlike the extant literature on oil price and stock returns, we focus on out-of-sample forecasting of returns. We show that the ability of the oil price to forecast stock returns depends not only on the data frequency used but also on the estimator. Second, out-of-sample forecasting of returns is sector-dependent, suggesting that oil price is relatively more important for some sectors than others. Third, we examine the determinants of out-of-sample predictability for each sector using industry characteristics and find strong evidence that return predictability has links to certain industry characteristics, such as book-to-market ratio, dividend yield, size, price earnings ratio, and trading volume.  相似文献   

13.
Accruals correlate closely with the determinants of the conditional equity premium at both the firm and the aggregate levels. The common component of firm‐level accruals, which cannot be diversified away by aggregation, explains the positive relation between aggregate accruals and future stock market returns. The residual component, which accounts for most variation in firm‐level accruals, is responsible for the negative cross‐sectional relation between firm‐level accruals and future stock returns. Consistent with the risk‐based explanation, aggregate accruals, as a proxy for the conditional equity premium, forecast changes in aggregate economic activity. Moreover, we document a similar comovement of earnings with the conditional equity premium at both the firm and the aggregate levels, which helps explain the negative relation between changes in aggregate earnings and contemporaneous market returns.  相似文献   

14.
Although financial market participants are increasingly interested in the financial value of unstructured qualitative information regarding the prospects of a firm, empirical evidence remains sparse on the properties of qualitative content in consumer product reviews and their capital market implications. Using a broad sample of consumer reviews posted on Amazon.com, I examine whether the linguistic tone of aggregate consumer product reviews conveys information that is associated with firms’ sales, earnings, stock returns and risk. I find that aggregate review tone successfully predicts a firm's forthcoming quarterly sales. Moderating analyses show that this predictability is stronger for firms operating in a highly competitive environment. I further find that review tone predicts a firm's quarterly earnings surprises, abnormal stock returns and risk. A path analysis shows that the effect of review tone on stock prices is partially channeled through its effect on firms’ earnings. I finally find that negative review tone is more informative and useful than positive tone in predicting a firm's fundamentals. Importantly, these results hold after controlling for other review characteristics, including review rating, review volumeand review dispersion. Overall, my findings highlight the importance of considering the tone of consumer reviews when evaluating a firm's prospects and value.  相似文献   

15.
This paper provides a mispricing-based explanation for the negative relation between firm-level productivity and stock returns. Investors appear to underprice unproductive firms and overprice productive firms. We find evidence consistent with the speculative overpricing of productive firms driven by investor sentiment and short sale constraints. Investors erroneously extrapolate past productivity growth and its associated operating performance and stock returns, despite their subsequent reversals. Such mispricing is perpetuated because of limits to arbitrage and is partially corrected around earnings announcements when investors are surprised by unexpected earnings news. Decomposition analysis indicates that extrapolative mispricing and limits to arbitrage explain most of the return predictability of firm-level productivity.  相似文献   

16.
This paper reports evidence that dissident stockholders who wage a proxy contest for board seats typically site poor earnings rather than poor stock price performance as necessitating the proposed hostile management change. Consistent with this finding, sample firms' pre-contest accounting returns are systematically below-market, whereas their pre-contest stock returns are not. During an election campaign, incumbent managers apparently exercise their accounting discretion to paint a favorable picture of their own performance to voting stockholders. If elected, dissidents tend to take an immediate earnings ‘bath’ which they typically blame on the poor decisions of prior management.  相似文献   

17.
This paper examines whether credit ratings convey information about the firm’s future earnings to the capital markets. Using the future earnings response coefficient methodology, we find that the current stock returns of rated firms reflect more future earnings than do the stock returns of non-rated firms. We also find that the market reflect more future earnings in current returns for higher-rated firms. In addition, we present evidence that returns impound future earnings to a greater extent after a ratings initiation or upgrade. We empirically eliminate the possibility that our findings are driven by earnings smoothing, market liquidity or omitted default risk factors associated with ratings. Our results are robust to controlling for potential omitted variables, endogeneity bias, loss versus profit firms, and serial correlation of error terms. Overall, the evidence suggests that credit ratings help disseminate private information to reduce information uncertainty about the firm’s future profitability among market participants.  相似文献   

18.
Berkman, Dimitrov, Jain, Koch, and Tice (2009) document a negative relationship between differences of opinion and earnings announcement returns, and this relationship is more pronounced when short‐sale constraints are likely to be high. These findings are interpreted as support for the theory in Miller (1977) that binding short sale constraints cause pessimists to be underrepresented in price formation. We conjecture that accounting information (i.e., earnings news) is likely to play a role in this returns pattern. After controlling for the level of earnings news, we find that the relationship between differences of opinion and stock returns is either eliminated or opposite from what is predicted by Miller's theory. Further, we present evidence that suggests the confounding effect of earnings news can be explained by (pessimistic) management earnings guidance. Our findings offer an alternative explanation for why low differences of opinion stocks earn greater abnormal returns around earnings announcements.  相似文献   

19.
This study examines the influence of investor sentiment on the relationship between disagreement among investors and future stock market returns. We find that the relationship between disagreement and future stock market returns time-varies with the degree of investor sentiment. Higher disagreement among investors’ opinions predicts significantly lower future stock market returns during high-sentiment periods, but it has no significant effect on future stock market returns during low-sentiment periods. Our findings imply that investor sentiment is related to several causes of short-sale impediments suggested in the previous literature on investor sentiment, and that the stock return predictability of disagreement is driven by investor sentiment. We demonstrate that investor sentiment has a significant impact on the stock market return predictability of disagreement through in-sample and out-of-sample analyses. In addition, the profitability of our suggested trading strategy exploiting disagreement and investor sentiment level confirms the economic significance of incorporating investor sentiment into the relationship between disagreement among investors and future stock market returns.  相似文献   

20.
We investigate the joint hypothesis that (1) tax expense contains information about core profitability that is incremental to reported earnings and (2) that information is reflected in stock prices with a delay. We find that seasonally differenced quarterly tax expense, our proxy for tax expense surprise, is related positively to future returns. This anomaly is separate from previously documented pricing anomalies based on financial and tax variables. Additional investigation reveals that tax expense surprise is related positively to changes in future quarterly earnings and tax expense, and both those future changes are related positively to future returns. While the returns to investing in predictable future earnings changes has been documented before, these results suggest that predicting changes in future tax expense also generates incremental future returns.  相似文献   

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