FURTHER INSIGHT INTO THE STANDARDIZED UNEXPECTED EARNINGS ANOMALY: SIZE AND SERIAL CORRELATION EFFECTS |
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| Authors: | Richard J Rendleman Jr Charles P Jones Henry A Latané |
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| Institution: | University of North Carolina at Chapel Hill, Chapel Hill, NC 27514.;North Carolina State University, Raleigh, NC 27695–8109.;University of North Carolina at Chapel Hill. Professor Latanédied on December 27, 1984. The authors thank Aetna Life Insurance Company, First Union National Bank, and The North Carolina Institute for Investments Research for partial funding of this study. |
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| Abstract: | Studying size and serial correlation effects, the authors examine why portfolios selected on the basis of standardized unexpected earnings (SUEs) exhibit excess returns. Results of the study indicate that the SUE effect and the size effect are independent anomalies; however, a more plausible explanation of the SUE effect may involve serial correlation of SUEs. The authors demonstrate that more than half of the post-announcement responses to current quarter earnings may actually be pre-announcement adjustments to next quarter's earnings. |
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