"Usefulness of Earnings and Market Efficiency"(in Japanese)

This paper investigates the value relevance of earnings and the explanatory power of earnings for subsequent returns. This analysis, at the same time, examines the efficiency of capital markets. The targets of this paper are two class of returns over different periods. Cross-sectional analysis and the panel analysis are adopted. We use both the bootstrap regression and the linear panel regression which corrects serial correlations. Our results show that the market is almost efficient regarding to earnings, special items, and dirty surplus in US and JP. Although those information have explanatory power for annual returns from the beginning of the next year, the explanatory power decreases or diminishes for annual returns from four months after the closing date. On the other hand, empirical results show the possibility that anomalies may occur. We detect that investors cannot quickly and adequately respond to losses, negative special items, and negative dirty surplus. Moreover, residuals that are estimated by regressing stock prices of closing date on earnings are negatively associated with the subsequent returns. This is the phenomenon commonly observed in US and JP. The results imply that stock prices will converge to the fundamental value of firms estimated by earnings capitalization model. Those findings provide the empirical foundation to the presumptions of studies, which investigates the value relevance of earnings. This research, which integrates the relationship between contemporary stock prices and earnings and the relationship between future returns and earnings, contributes to the further research on the usefulness of earnings and to the selection of panel analysis method.