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The Relationship between Accounting Numbers and Returns in the Baltic Stock Markets

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  • Neringa Jarmalaite Pritchard

Abstract

This paper analyses the relationship between accounting data and market price returns in the stock markets of Lithuania, Latvia and Estonia. Given the different informational environment and accounting practices from those of developed markets, and relatively thinly traded Baltic stocks, the paper aims to evaluate the relevance of accounting numbers for investors in their investment decisions. It investigates both the contemporaneous one-period return-earnings relation and leading period returns in regression model of the main and secondary list securities (totalling 99 companies) over a 5-year period (1995-2000). Leading period returns in regression model are used order to reduce downward bias in the earnings response coefficient when prices lead earnings, meaning that information reflected in the markets expectations and thus in prices is richer than that in the past series of earnings. Transitory earnings, the other common cause of low returns-earnings association, are analysed as well. I look at the effects of transitory earnings by accounting for the asymmetry in relation to losses and also for the non-linearity of the returns-earnings regression.

Suggested Citation

  • Neringa Jarmalaite Pritchard, 2002. "The Relationship between Accounting Numbers and Returns in the Baltic Stock Markets," CERT Discussion Papers 0206, Centre for Economic Reform and Transformation, Heriot Watt University.
    • Handle: RePEc:hwe:certdp:0206
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    References listed on IDEAS

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    More about this item

    Keywords

    Estonia; Latvia; Lithuania; value relevance; earnings response coefficients; prices leading earnings; asymmetry; non-linearity;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

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