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Earnings dispersion and aggregate stock returns

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  • Jorgensen, Bjorn
  • Li, Jing
  • Sadka, Gil

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Accounting and Economics.

Volume (Year): 53 (2012)
Issue (Month): 1 ()
Pages: 1-20

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Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:1-20

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Web page: http://www.elsevier.com/locate/jae

Related research

Keywords: Accounting valuation; Earnings dispersion; Expected-return variation; Profitability;

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References

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Cited by:
  1. Hamid Reza Vakilifard & Forough Heirany, 2013. "A Comparative Evaluation of the Predictability of Fama-French Three-Factor Model and Chen Model in Explaining the Stock Returns of Tehran Stock Exchange," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(3), pages 118-124, July.

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