The Relation between Aggregate Earnings and Security Returns Over Long Windows PDF Download
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Author: Pervin K. Shroff
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper derives theoretical explanations for the increase in the returns-earnings R2 as earnings are aggregated over longer windows. Consistent with our intuition, the model shows that aggregation is useful because accounting lags cancel out over time, thus improving the returns-earnings correlation. Interestingly, the model reveals an additional reason for high R2 over long windows: aggregating earnings over longer windows increases the positive covariance between current and future earnings, which further increases the R2. As a consequence of this, the magnitude of market response to a dollar of earnings can be greater than one over some time range. This is consistent with prior empirical findings that over the ten-year window the regression slope coefficient is greater than one (around 1.7). In fact, a re-examination of the empirical results shows that a slope coefficient greater than one is the major contributor to the high R2 over the ten-year window.
Author: Pervin K. Shroff
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper derives theoretical explanations for the increase in the returns-earnings R2 as earnings are aggregated over longer windows. Consistent with our intuition, the model shows that aggregation is useful because accounting lags cancel out over time, thus improving the returns-earnings correlation. Interestingly, the model reveals an additional reason for high R2 over long windows: aggregating earnings over longer windows increases the positive covariance between current and future earnings, which further increases the R2. As a consequence of this, the magnitude of market response to a dollar of earnings can be greater than one over some time range. This is consistent with prior empirical findings that over the ten-year window the regression slope coefficient is greater than one (around 1.7). In fact, a re-examination of the empirical results shows that a slope coefficient greater than one is the major contributor to the high R2 over the ten-year window.
Author: Peter Douglas Easton
Publisher:
ISBN: 9780646086972
Category : Stocks
Languages : en
Pages : 31
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Author: Charles Hall
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 92
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Author: Guochang Zhang
Publisher: Springer Science & Business Media
ISBN: 1461481600
Category : Business & Economics
Languages : en
Pages : 250
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Book Description
The purpose of this book is to offer a more systematic and structured treatment of the research on accounting‐based valuation, with a primary focus on recent theoretical developments and the resulting empirical analyses that recognize the role of accounting information in making managerial decisions. Since its inception, valuation research in accounting has evolved primarily along an “empirically driven” path. In the absence of models constructed specifically to explain this topic, researchers have relied on economic intuition and theories from other disciplines (mainly finance and economics) as a basis for designing empirical analyses and interpreting findings. Although this literature has shed important light on the usefulness of accounting information in capital markets, it is obvious that the lack of a rigorous theoretical framework has hindered the establishment of a systematic and well‐structured literature and made it difficult to probe valuation issues in depth. More recently, however, progress has been made on the theoretical front. The two most prominent frameworks are (i) the “linear information dynamic approach” and (ii) the “real options‐based approach” which recognizes managerial uses of accounting information in the pursuit of value generation. This volume devotes its initial chapters to an evaluation of the models using the linear dynamic approach, and then provides a synthesis of the theoretical studies that adopt the real options approach and the empirical works which draw on them. The book also makes an attempt to revisit and critique existing empirical research (value-relevance and earnings-response studies) within the real options-based framework. It is hoped that the book can heighten interest in integrating theoretical and empirical research in this field, and play a role in helping this literature develop into a more structured and cohesive body of work. Value is of ultimate concern to economic decision-makers, and valuation theory should serve as a platform for studying other accounting topics. The book ends with a call for increased links of other areas of accounting research to valuation theory.
Author: Peter D. Easton
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Author: Matthias Meitner
Publisher: Springer Science & Business Media
ISBN: 3790817236
Category : Business & Economics
Languages : en
Pages : 246
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Book Description
Corporate valuation using multiples is one of the most popular corporate valuation approaches. In this book, the different steps of this valuation approach such as the selection of comparable companies or the choice of the reference variables are discussed. Then, the circumstances required for a sound valuation (e.g., the degree of efficiency of the equity market) are described. Additionally, the book gives insight on how the state of the industry and/or the company has an impact on the proper choice of the reference variables. Finally, it is shown how multi-factor models can enrich the universe of valuation models. While always maintaining the academic rigor, the author addresses practice-relevant topics and delivers hands-on solutions for typical valuation problems.
Author: Peter Easton
Publisher: Now Publishers Inc
ISBN: 1601981945
Category : Business & Economics
Languages : en
Pages : 148
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Book Description
Estimating the Cost of Capital Implied by Market Prices and Accounting Data focuses on estimating the expected rate of return implied by market prices, summary accounting numbers, and forecasts of earnings and dividends. Estimates of the expected rate of return, often used as proxies for the cost of capital, are obtained by inverting accounting-based valuation models. The author describes accounting-based valuation models and discusses how these models have been used, and how they may be used, to obtain estimates of the cost of capital. The practical appeal of accounting-based valuation models is that they focus on the two variables that are commonly at the heart of valuations carried out by equity analysts -- forecasts of earnings and forecasts of earnings growth. The question at the core of this monograph is -- How can these forecasts be used to obtain an estimate of the cost of capital? The author examines the empirical validity of the estimates based on these forecasts and explores ways to improve these estimates. In addition, this monograph details a method for isolating the effect of any factor of interest (such as cross-listing, fraud, disclosure quality, taxes, analyst following, accounting standards, etc.) on the cost of capital. If you are interested in understanding the academic literature on accounting-based estimates of expected rate of return this monograph is for you. Estimating the Cost of Capital Implied by Market Prices and Accounting Data provides a foundation for a deeper comprehension of this literature and will give a jump start to those who have an interest in these topics. The key ideas are introduced via examples based on actual forecasts, accounting information, and market prices for listed firms, and the numerical examples are based on sound algebraic relations.
Author: SUBRAMANYAM
Publisher: McGraw Hill
ISBN: 1526864991
Category : Business & Economics
Languages : en
Pages : 816
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Book Description
EBOOK: Financial Statement Analysis
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: WILD
Publisher: McGraw Hill
ISBN: 0077156838
Category : Business & Economics
Languages : en
Pages : 780
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Book Description
EBOOK: FINANCIAL STATEMENT ANA
