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Author: Debjeet Pradhan
Publisher:
ISBN:
Category : Cash flow
Languages : en
Pages : 158
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Book Description
In this study, I examine the properties of positive and negative aggregate earnings changes and how they relate to contemporaneous market returns. I find that the negative relationship between aggregate earnings news and market returns, documented in Kothari et al. (2006) and Cready and Gurun (2010), is driven primarily by bad news observations. I also find that negative aggregate earnings changes mean revert in the two quarters following the negative aggregate earnings changes quarter. Market returns increase contemporaneously with negative aggregate earnings news, suggesting that investors incorporate the expectation of mean reversion for negative aggregate earnings changes in subsequent quarters. As a result, the aggregate earnings news market returns relationship is negative when aggregate earnings news is negative. When aggregate earnings news is positive, I find that market returns are positively associated with aggregate earnings news. Since aggregate earnings news consists of cash flow and discount rate news components, each having an opposite direction effect on market return, the cash flow news component dominates the discount rate news component when aggregate earnings news is positive, while the discount rate news component dominates the cash flow news component when aggregate earnings news is negative.
Author: Debjeet Pradhan
Publisher:
ISBN:
Category : Cash flow
Languages : en
Pages : 158
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Book Description
In this study, I examine the properties of positive and negative aggregate earnings changes and how they relate to contemporaneous market returns. I find that the negative relationship between aggregate earnings news and market returns, documented in Kothari et al. (2006) and Cready and Gurun (2010), is driven primarily by bad news observations. I also find that negative aggregate earnings changes mean revert in the two quarters following the negative aggregate earnings changes quarter. Market returns increase contemporaneously with negative aggregate earnings news, suggesting that investors incorporate the expectation of mean reversion for negative aggregate earnings changes in subsequent quarters. As a result, the aggregate earnings news market returns relationship is negative when aggregate earnings news is negative. When aggregate earnings news is positive, I find that market returns are positively associated with aggregate earnings news. Since aggregate earnings news consists of cash flow and discount rate news components, each having an opposite direction effect on market return, the cash flow news component dominates the discount rate news component when aggregate earnings news is positive, while the discount rate news component dominates the cash flow news component when aggregate earnings news is negative.
Author: Lakshmanan Shivakumar
Publisher:
ISBN:
Category :
Languages : en
Pages : 16
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Book Description
Anilowski, Feng and Skinner (Journal of Accounting and Economics, 2006, this issue) examine the relationship between aggregate earnings guidance, aggregate earnings news and market returns. They provide evidence that changes in aggregate proportions of downward or upward earnings guidance are associated with aggregate earnings news and weakly associated with market returns. However, the study is unable to establish causality or the precise nature of the relationship between aggregate earnings guidance and market returns. To better understand the relationship, this paper analyses the relation between aggregate earnings, stock market returns and the macroeconomy. I empirically document that aggregate earnings primarily contain information about future inflation. This inflation information in aggregate earnings causes aggregate earnings to be negatively correlated with stock returns. The paper concludes with suggestions for future research.
Author: Carol Anilowski Cain
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
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Book Description
We investigate whether earnings guidance affects aggregate stock returns through its effects on expectations about overall earnings performance and/or aggregate expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We find more modest evidence that guidance, again, largely downward guidance, is associated with market returns - market returns appear to respond to guidance toward the end of each calendar quarter, when most earnings preannouncements are released, and there is some evidence that firm-level guidance affects market returns in short windows around its release.
Author: William M. Cready
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
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Book Description
A recent analysis by Kothari, Lewellen and Warner(2006) report negative relations between aggregate earnings surprise and market return in quarterly earnings disclosure and reporting periods and no evidence of a positive relation between aggregate earnings and market return in any post-disclosure quarters. In this analysis we develop approaches aimed at better isolating aggregate earning's news component and find strong evidence of a positive relation between aggregate earnings surprise and return in the quarter following the earnings disclosure quarter. This pattern is consistent with the market not fully incorporating discount rate shock and cash flow implications of aggregate earnings in the disclosure period.
Author: Jonathan Lewellen
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book 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.
Author: John Shon
Publisher: FT Press
ISBN: 0132615851
Category : Business & Economics
Languages : en
Pages : 225
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Book Description
Profit from earnings announcements, by taking targeted, short-term option positions explicitly timed to exploit them! Based on rigorous research and huge data sets, this book identifies the specific earnings-announcement trades most likely to yield profits, and teaches how to make these trades—in plain English, with real examples! Trading on Corporate Earnings News is the first practical, hands-on guide to profiting from earnings announcements. Writing for investors and traders at all experience levels, the authors show how to take targeted, short-term option positions that are explicitly timed to exploit the information in companies’ quarterly earnings announcements. They first present powerful findings of cutting-edge studies that have examined market reactions to quarterly earnings announcements, regularities of earnings surprises, and option trading around corporate events. Drawing on enormous data sets, they identify the types of earnings-announcement trades most likely to yield profits, based on the predictable impacts of variables such as firm size, visibility, past performance, analyst coverage, forecast dispersion, volatility, and the impact of restructurings and acquisitions. Next, they provide real examples of individual stocks–and, in some cases, conduct large sample tests–to guide investors in taking advantage of these documented regularities. Finally, they discuss crucial nuances and pitfalls that can powerfully impact performance.
Author: S. P. Kothari
Publisher:
ISBN:
Category :
Languages : en
Pages : 68
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Book 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. JEL Classification: G12, G14, M41.
Author: Lindsey A. Gallo
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
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Book Description
This paper examines whether the negative association between aggregate earnings and returns is explained by the monetary policy news in aggregate earnings. Using Federal funds futures data to construct a measure of policy news, we find that aggregate earnings convey information about the Fed's policy actions. Additionally, the negative aggregate earnings-returns association is muted when we control for policy surprises. This result is more pronounced in periods with negative policy surprises, which tend to trigger a more significant market reaction. Taken together, these results suggest that aggregate earnings convey policy news and the market reacts negatively to policy surprises, which drives the negative aggregate earnings-returns association.
Author: Wen He
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
Kothari, Lewellen and Warner (2006) document that in the U.S. market aggregate earnings changes are negatively related to contemporaneous market returns. This is puzzling given the well-documented evidence that firm-level earnings changes are positively related to stock returns. In this study we use a sample of 28 countries to provide international evidence on this important issue. In pooled cross-country and time-series regressions, we find that aggregate earnings changes are positively associated with contemporaneous market returns. When we run time-series regressions of market returns on aggregate earnings changes for each country, we find only four countries have negative coefficients for aggregate earnings changes and none of these negative coefficients are statistically significant. This evidence contrasts the U.S. evidence. Furthermore aggregate earnings exhibits substantial persistence, suggesting current earnings convey information about future earnings. Finally we find that the earnings-returns relation at aggregate becomes less positive in countries with more transparent accounting disclosure. This result supports the argument proposed by Sadka and Sadka (2009) that predictability of aggregate earnings leads to the negative relation between aggregate earnings and market returns in the U.S.
Author: Umit G. Gurun
Publisher:
ISBN:
Category :
Languages : en
Pages : 58
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Book Description
This paper identifies a distinct immediate announcement period negative relation between earnings announcement surprises and aggregate market returns. Such a relation implies that market participants use earnings information in forming expectations about expected aggregate discount rates and, specifically, that good earnings news is associated with a positive shock to required returns. We also find some evidence that this negative relation persists well beyond the immediate announcement period, suggesting that market participants do not immediately fully impound these future market return implications of aggregate earnings news.
