Earnings dispersion and aggregate stock returns

Bjørn Jørgensen, Jing Li and Gil Sadka

Journal of Accounting and Economics, 2012, vol. 53, issue 1, 1-20

Abstract: This paper studies the relation between aggregate stock returns and contemporaneous and future cross-sectional earnings dispersion. We hypothesize that increases in expected earnings dispersion signal increases in uncertainty and increases in unemployment, thereby causing expected returns to rise, which in turn causes prices to decline. We find a positive relation between aggregate stock returns and contemporaneous earnings dispersion because higher earnings dispersion is associated with higher expected returns. Consequently, we also find a negative relation between aggregate stock returns and future (one-year ahead) earnings dispersion, as investors anticipate higher future earnings dispersion and higher expected returns.

Keywords: Accounting valuation; Earnings dispersion; Expected-return variation; Profitability (search for similar items in EconPapers)
JEL-codes: E32 G12 G14 M41 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:53:y:2012:i:1:p:1-20

DOI: 10.1016/j.jacceco.2011.06.001

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