Aggregate Earnings and Market Returns: International Evidence. (5th August 2014)

• Record Type: Journal Article
• Authors: He, Wen; Hu, Maggie (Rong)
• Is Part Of: Journal of financial and quantitative analysis. Volume 49:Number 4(2015)
• Page Start: 879
• Page End: 901
• Publication Date: 2014-08-05
• Subjects: Finance -- Periodicals; Investments -- Mathematics -- Periodicals; 332.05
• DOI: 10.1017/S0022109014000441
• Languages: English
• ISSNs: 0022-1090

Abstract

<abstract abstract-type="normal"> <title>Abstract</title> <p>Kothari, Lewellen, and Warner (<xref ref-type="bibr" rid="ref23">2006</xref>) document that aggregate earnings changes in the United States are <italic>negatively</italic> related to contemporaneous market returns. In this study we show that this negative aggregate earnings-returns relation is unique to the United States. In 28 non-U.S. markets, aggregate earnings changes are <italic>positively</italic> associated with contemporaneous market returns. Further evidence shows that the aggregate earnings-returns relation becomes less positive in countries with more transparent financial disclosure that helps investors forecast earnings more precisely. Our result supports Sadka and Sadka's (<xref ref-type="bibr" rid="ref27">2009</xref>) argument that predictability of aggregate earnings leads to the negative relation between aggregate earnings and market returns in the United States.</p> </abstract>