SHORT-TERMISM IN EURONEXT LISBON: AN EMPIRICAL ANALYSIS

Pedro Verga Matos and Miguel Coelho
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Pedro Verga Matos: ISEG - Lisbon School of Economics and Management, Universidade de Lisboa, Portugal
Miguel Coelho: ISEG - Lisbon School of Economics and Management, Universidade de Lisboa, Portugal

Portuguese Journal of Management Studies, 2016, vol. 21, issue 1, 49-76

Abstract: For several years, there has been an ongoing debate about one inefficiency of markets, namely, stock market myopic behavior or stock market short-termism. This inefficiency is described as being a situation where investors overvalue short-term earnings and undervalue long-term earnings. This study examines whether the Portuguese stock market exhibits such preference for short-term earnings for the period between 2000 and 2008, using the Abarbanell and Bernard (2000) accounting-based valuation model, which generates predictions about how prices should relate to book value, as well as expected short-term and long-term earnings. Empirical analysis is not conclusive. In fact the evidence collected for this period based on Abarbanell and Bernard’s (2000) cross-section analysis favours market efficiency and therefore we reject the claim of market myopia. According to this result, the Portuguese stock market assigns the same weight for all the value components of listed companies. Based on an innovative panel data analysis, we collected evidence on which market assumes a particular form of short-termism, as investors value efficiently book value and short-term earnings, but undervalue long-term earnings. This paper contributes with quantitative evidence for the rising public policy debate regarding the scale of short-termism in capital markets. Classification- JEL:

Keywords: Market myopia; Market efficiency; Book value; Abnormal earnings; short termism; Euronext Lisbon; Portugal (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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