Determinants of the Returns-earnings Correlation
Author | : Pervin Keki Shroff |
Publisher | : |
Total Pages | : 29 |
Release | : 1993 |
Genre | : Accounting |
ISBN | : |
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Author | : Pervin Keki Shroff |
Publisher | : |
Total Pages | : 29 |
Release | : 1993 |
Genre | : Accounting |
ISBN | : |
Author | : Pervin K. Shroff |
Publisher | : |
Total Pages | : |
Release | : 2000 |
Genre | : |
ISBN | : |
The weak correlation between accounting earnings and security returns documented by numerous empirical studies is an issue of concern in current accounting research. Given that price is determined not solely by accounting earnings but also by other sources of information about future earnings this paper focuses on the relation between earnings and other information to understand the returns- earnings association. The analysis indicates that current earnings exhibit high explanatory power for returns if they correlate with expected future earnings (or with other information which reflects expected future earnings). A high price-earnings (P/E) ratio coupled with a high return on equity (ROE) can ex ante indicate earnings growth and the earnings of firms with these attributes are positively correlated with future earnings. The high growth subset obtains an impressive returns-earnings R2 of 31 percent and an earnings coefficient of 6.17 demonstrating that it is possible to identify firms whose earnings are strongly correlated with returns using a parsimonious set of firm characteristics.
Author | : Orley Ashenfelter |
Publisher | : Elsevier |
Total Pages | : 800 |
Release | : 1999-11-18 |
Genre | : Business & Economics |
ISBN | : 9780444501899 |
A guide to the continually evolving field of labour economics.
Author | : AICPA |
Publisher | : John Wiley & Sons |
Total Pages | : 800 |
Release | : 2017-12-04 |
Genre | : Business & Economics |
ISBN | : 1945498870 |
Updated for new accounting and auditing guidance issued, this valuable tool provides hundreds of high quality disclosure examples from carefully selected U.S. companies of different sizes, across industries such as banking, credit and insurance, communication services, and healthcare from such organizations as Scotts Miracle-Gro, Coca-Cola, Caterpillar, and BB&T. Illustrations of the most important, immediate, and challenging disclosures, such as derivatives and hedging, consolidations, and fair value measurement are provided. Hot topics include statement of cash flows, going concern, and business combinations and intangibles. This edition also provides clear, direct guidance to help you understand and comply with all significant reporting requirements and detailed indexes to help you quickly find exactly what you need.
Author | : Tak-jun Wong |
Publisher | : |
Total Pages | : 274 |
Release | : 1990 |
Genre | : Accounting and price fluctuations |
ISBN | : |
Author | : Reza Espahbodi |
Publisher | : |
Total Pages | : 35 |
Release | : 2000 |
Genre | : |
ISBN | : |
Many studies have attempted to identify firm specific characteristics that influence the return-earnings relationship. The R-squared reported in these studies, however, are generally low and the earnings response coefficients are less than the theoretical value. Three factors have contributed to the low R-squared and the varying estimates of the earnings response coefficients: (1) violation of the OLS regression assumptions, particularly the linearity assumption, (2) omission of important (and correlated) variables, and (3) subjective specification of what variables (and interaction terms) to include in the earnings response regression.This study attempts to avoid these problems. Specifically, I examine all firm-specific characteristics that are known to influence the relationship between earnings and security return. This reduces the likelihood of an omitted correlated variable problem. More importantly, I use the recursive partitioning technique developed by Breiman et al. (1984), thus avoiding the subjectivity in specifying the earnings response regression model as well as the problems resulting from the distributional assumptions of the ordinary regression analysis.The recursive partitioning analysis indicates that five factors - size, market to book, earnings predictability, earnings persistence, and book value per share - affect the return-earnings relationship either individually and/or in interaction with each other and unexpected earnings. When included in the earnings response regression, these factors and their interactions explain a large percentage of the cross-sectional variations in return. Sensitivity tests are performed for alternate return windows and measure of earnings.
Author | : Albert J. Fredman |
Publisher | : |
Total Pages | : 336 |
Release | : 1968 |
Genre | : Corporations |
ISBN | : |
Author | : Uptal Bhattacharya |
Publisher | : |
Total Pages | : 27 |
Release | : 2002 |
Genre | : |
ISBN | : 9789616430258 |
Author | : Andreas Fagereng |
Publisher | : International Monetary Fund |
Total Pages | : 69 |
Release | : 2018-07-27 |
Genre | : Business & Economics |
ISBN | : 1484370066 |
We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.