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Earnings news, expected earnings, and aggregate stock returns

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  • Choi, Jung Ho
  • Kalay, Alon
  • Sadka, Gil

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.

Suggested Citation

  • Choi, Jung Ho & Kalay, Alon & Sadka, Gil, 2016. "Earnings news, expected earnings, and aggregate stock returns," Journal of Financial Markets, Elsevier, vol. 29(C), pages 110-143.
    • Handle: RePEc:eee:finmar:v:29:y:2016:i:c:p:110-143
    DOI: 10.1016/j.finmar.2016.02.001
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    References listed on IDEAS

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    Cited by:

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    3. Yunhao Chen & Xiaoquan Jiang & Bong-Soo Lee, 2015. "Long-Term Evidence on the Effect of Aggregate Earnings on Prices," Financial Management, Financial Management Association International, vol. 44(2), pages 323-351, June.
    4. Beyer, Anne & Smith, Kevin C., 2021. "Learning about risk-factor exposures from earnings: Implications for asset pricing and manipulation," Journal of Accounting and Economics, Elsevier, vol. 72(1).
    5. Vinay Goyal & Subrata K. Mitra, 2022. "Is the asymmetric impact of aggregate revenue and aggregate earnings on the stock index in accordance with the prospect theory?," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 200-222, March.
    6. Wiesen, Taylor, 2023. "Aggregate earnings and market expectations in United States presidential election prediction markets," Advances in accounting, Elsevier, vol. 60(C).
    7. Fahd Alduais, 2020. "An empirical study of the earnings–returns association: an evidence from China’s A-share market," Future Business Journal, Springer, vol. 6(1), pages 1-12, December.

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    More about this item

    Keywords

    Stock prices; Aggregate earnings; Discount rates; Expected returns; Expected earnings;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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