IDEAS home Printed from
   My bibliography  Save this paper

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


  • Takashi Obinata

    (Faculty of Economics, University of Tokyo)


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.

Suggested Citation

  • Takashi Obinata, 2008. ""Usefulness of Earnings and Market Efficiency"(in Japanese)," CIRJE J-Series CIRJE-J-198, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:jseres:2008cj198

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tky:jseres:2008cj198. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.