Earnings news, expected earnings, and aggregate stock returns

Jung Ho Choi, Alon Kalay and Gil Sadka

Journal of Financial Markets, 2016, vol. 29, issue C, 110-143

Abstract: In contrast to firm-level relations, researchers have found that aggregate earnings changes and aggregate stock returns are negatively related. In this paper, we construct new measures of aggregate earnings news based on revisions in analyst forecasts. The findings suggest aggregate earnings news is positively related to contemporaneous stock returns. The results also show that aggregate stock returns are positively related to unexpected aggregate forecast errors, and negatively associated with expected aggregate earnings growth. Taken together, these findings suggest the negative relation between aggregate earnings changes and aggregate contemporaneous stock returns results from the expected component of aggregate earnings, rather than aggregate earnings surprises.

Keywords: Stock prices; Aggregate earnings; Discount rates; Expected returns; Expected earnings (search for similar items in EconPapers)
JEL-codes: E32 G12 G14 M41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:29:y:2016:i:c:p:110-143

DOI: 10.1016/j.finmar.2016.02.001

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