Understanding the Variation in the Information Content of Earnings: A Return Decomposition Analysis

Kewei Hou, Yinglei Zhang and Zili Zhuang
Additional contact information
Kewei Hou: OH State University
Yinglei Zhang: Chinese University of Hong Kong
Zili Zhuang: Chinese University of Hong Kong

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We use the Campbell (1991) return decomposition framework to reexamine the variation in the information content of earnings between profit firms and loss firms and over time. We show that current earnings surprises are more strongly correlated with the discount rate news component of returns for loss firms and in the recent period. This stronger correlation offsets the positive relation between current earnings surprises and the earnings news component of returns, causing the overall earnings-return relation to be weaker for loss firms and during the recent period. Consistent with these findings, we also find that discount rate news is a more important driver of the return variation of loss firms and in the recent period. Our results highlight the importance of time-varying discount rates for understanding the information content of earnings.

JEL-codes: G12 G14 M41 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-ger
References: Add references at CitEc
Citations:

Downloads: (external link)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2548688

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2015-01

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().