Event Study

Stock Returns, Aggregate Earnings Surprises, and Behavioral Finance S.P. Kothari Sloan shoal of Management, MIT kothari@mit.edu Jonathan Lewellen Sloan School of Management, MIT and NBER lewellen@mit.edu Jerold B. Warner Simon Graduate School of Business Administration, University of Rochester warner@simon.rochester.edu Revised: February 2003 First picture: September 2002 We are grateful to Jun Pan, Bill Schwert, Ross Watts, and workshop participants at Arizona State, MIT, Rochester, and the 2003 APJAE Symposium for helpful comments. We also thank Irfan Safdar for excellent investigate assistance. Stock Returns, Aggregate Earnings Surprises, and Behavioral Finance Abstract We study the ocellus foodstuff reaction to sum simoleons give-and-take. Previous search shows that, for individual crockeds, line of descent prices react positively to mesh spick-and-spans exactly require several lodge to neary ring the breeding in earnings. We find that the relation between returns and earnings is substantially different in conglobation data. First, returns are uncorrelated to past earnings, suggesting that prices neither underreact nor overreact to aggregate earnings news. Second, aggregate returns are negatively correlated with concurrent earnings; over the last 30 years, stock prices increased 6.

5% in quarters with negative earnings growth and only 1.9% otherwise. This finding suggests that earnings and discount rates move together over time, and provides new evidence that discount-rate shocks explain a significant fraction of aggregate stock returns. 1. Introduction This paper studies the relation between stock returns and aggregate earnings surprises. An extensive literature investigates the stock market reaction to individual companies earnings announcements (e.g., Ball and Brown, 1968; Watts, 1978; Bernard and Thomas, 1989). At the firm level, stock prices react positively to earnings news but require several quarters to fully reflect the information in earnings. Our goal is to... If you want to get a full essay, order it on our website: Orderessay

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