ungarbled earnings and dividends an analysis and extension of the beaver lambert and morse valuation model abstract this paper examines the beaver lambert and morse 1980 valuation model that capitalizes ungarbled earnings the analysis identifies the model s unspecified capitalization factor and it emphasizes that a complete model of ungarbled earnings must focus on the joint stochastic behavior of earnings and dividends it is shown that expected ungarbled earnings scaled for a constant equal expected dividends except for the scale factor no apparent economic reasons suggest that ungarbled earnings are any different from dividends

the information content of annual earnings releases a trading volume approach this paper reports the results of an empirical examination of the relations between the volume of securities traded the magnitude of surprises in annual earnings announcements and firm size although early trading volume studies e g beaver 1968 kiger 1972 and foster 1973 replicated basic information content studies with findings similar to those based on security prices we should not expect that security price and trading volume research will continue to yield identical results when more refined hypotheses are tested trading volume reflects investors activity by summing all market trades whereas security prices reflect an aggregation or averaging of investors beliefs as a result we will on occasion observe differences between price and volume reactions to earnings announcements as did morse 1981 this study extends the recent trend toward tests of more refined hypotheses by using a larger sample to examine the associations between unexpected earnings firm size and trading volume and testing whether such associations can be generalized across fiscal year end dates and stock exchange listing my results show a continuous positive relationship between trading

can self control explain avoiding free money evidence from interest free student loans abstract this paper uses insights from behavioral economics to explain a particularly surprising borrowing phenomenon one in six undergraduate students offered interest free loans turns them down models of impulse control predict that students may optimally reject subsidized loans to avoid excessive consumption during school using the national postsecondary student aid study we investigate students take up decisions and identify a group of students for whom the loans create an especially tempting liquidity increase students who would receive the loan in cash are significantly more likely to turn it down suggesting that consumers choose to limit their liquidity in economically meaningful situations

the information content of security prices a second look abstract beaver lambert and morse 1980 employ a regression of percentage change in prices on percentage change in earnings in which data are grouped by the dependent variable reverse regression offers a more intuitive and direct way to assess the information content of security prices the objective of beaver et al while grouping is asymptotically equivalent reverse regression is a more efficient way of examining the incremental explanatory power of lagged values of percentage change in price with respect to accounting earnings

volatility spread and stock market response to earnings announcements abstract using a broad sample of earnings announcements we find a monotonic increase in the spread between call and put implied volatilities as it gets closer to the earnings announcement date the steady build up of volatility spread in the days leading up to the announcement date coupled with the predictive power of cumulative abnormal implied volatility spread on subsequent announcement returns suggests that informed traders are the driving force behind the option market activities prior to earnings announcements such informed trading as proxied by the abnormal implied volatility spread increases rather than decreases the stock market response to earnings announcements after controlling for an array of firm and announcement characteristics this effect is most pronounced when the pre earnings option trading volume is heightened overall our findings lend strong support to the notion that informed options trading immediately before earnings announcements helps alleviate the stock market under reaction to earnings announcements and make it closer to a complete response

information in prices about future earnings abstract stock return over a period reflects the market s revision in expectation of future earnings accounting earnings over the same period however have limited ability to reflect such revised expectations therefore returns anticipate earnings changes and the earnings response coefficient from a regression of returns on contemporaneous earnings changes is biased toward zero we reduce this bias by including leading period returns in price earnings regressions the resulting estimated earnings response coefficient magnitudes suggest that the capital market on average views earnings changes to be largely permanent this is consistent with the random walk time series property of annual earnings

an analysis of the relation between the stewardship and valuation roles of earnings in this paper we seek a deeper understanding of how accounting information is used for valuation and incentive contracting purposes we explore linkages between weights on earnings in compensation contracts and in stock price formation a distinction between the valuation and incentive contracting roles of earnings in paul 1992 produces the null hypothesis that valuation earnings coefficients vecs and compensation earnings coefficients cecs are unrelated our empirical analyses of the relations between earnings and both stock prices and executive compensation data at the firm and industry levels over the period 1971 2000 rejects paul s 1992 hypothesis of no relation we also document an increasing weight over time on other public performance information captured by stock returns in the determination of cash compensation specifically we find that the incentive coefficient on returns is significantly higher in the second of two equal sample subperiods relative to the incentive coefficient on earnings

time varying stock price response to earnings induced by uncertainty about the time series process of earnings in this paper i examine how changes in the level of uncertainty about the time series process of earnings affect the magnitude of the stock price response to earnings announcements the basic premise is that when there is more uncertainty about the time series parameters of earnings a given level of unexpected earnings can have a larger effect on stock price because it is weighted more heavily by investors in determining the value of the firm tests are based on a simple model in which price is a function of expected future earnings which follow a random walk with drift time

market based empirical research in accounting a review interpretation and extension a decade and a half of the most concerted and ambitious research effort in accounting history is evaluated here it is the search into the relationship between publicly disclosed accounting information and the consequences of the use of this information by the major group of usersequity investors as such consequences are reflected in characteristics of common stocks traded in major exchanges this research effort known as market based accounting research mbar obtained its impetus from major developments in finance theory during the late 1950s and early 1960s these were the portfolio selection theory and its offspring the capital asset pricing model capm and the concept of informationally efficient capital markets ecm subsequent developments in information economics agency theory and optimal incentive signaling models were quickly incorporated into mbar while the impetus to this line of research came from other disciplines accounting was not only a beneficiary but also to a modest extent a benefactor mbar is relevant to the study of capital market efficiency the capm information economics and regulation this contribution distinguishes mbar from most accounting areas whose contributions to other disciplines are negligible in

seasonalities in security returns the case of earnings announcements abstract we document a seasonal pattern in stock returns around quarterly earnings announcement dates small firms show large positive abnormal returns and a sizable increase in the variability of returns around these dates only part of the large abnormal returns can be accounted for by the tendency of firms with good news to announce early large firms show no abnormal returns around announcement dates and a much smaller increase in variability

market implication of predisc10sure information size and exchange effects differential market reactions to earnings announcements can inter alia be ascribed to the extent to which such announcements entail surprise i e unexpected information the greater the predisclosure information the less the surprise element in earnings announcements since there is no direct measure of predisclosure information the literature has utilized two different proxies i firm size the size effect atiase 1980 1985 and ii exchange listing the exchange effect grant 1980 atiase 1980 argues that private predisclosure information production and dissemination are an increasing function of firm size capitalization if so the amount of unexpected information conveyed to the market by actual earnings reports should be inversely related to firm size other things equal empirical evidence in atiase 1985 supports this hypothesis grant 1980 found that for otc firms the average price revaluation associated with annual earnings announcements is significantly higher in the report week relative to both nonannouncement

predisclosure information firm capitalization and security price behavior around earnings announcements several studies on the relationship between earnings reports and security price behavior provide evidence suggesting that a significant portion of the information revealed through earnings reports is reflected in security prices prior to the report month e g ball and brown 1968 and brown and kennelly 1972 this has been attributed at least partly to the existence of other more timely sources of information which allow market agents to forecast earnings prior to their release the evidence above reflects an average finding across all firms one question of interest is whether there are significant systematic crosssectional differences in the security price reactions to earnings announcements of firms which are associated with specific firm characteristics that lead to differential amounts of predisclosure information this study focuses on firm size capitalization as one such characteristic a firm

accounting measurement price earnings ratio and the information content of security prices a number of papers for example beaver lambert and morse 1980 beaver lambert and ryan 1987 collins kothari and rayburn 1987 and freeman 1987 have documented that stock prices lead accounting earnings these investigations have led to the conclusions that prices provide information about earnings ahead of time and that earnings capture events that affect security prices with a lag the study of p e ratios has supported those conclusions and also produced additional insights beaver and morse 1978 have shown that pie ratios not only predict future earnings changes but they also identify transitory aspects of current earnings investors utilize other information in setting prices which provides both a prediction of future earnings and an indication of whether current earnings are representative of future earnings thus a comparison of price to earnings in a p e calculation can indicate the extent to which current earnings are transitory 1 in this paper we show that information in prices that leads future earnings is contained in financial statements while accrual accounting

the information content of earnings and prices a simultaneous equations approach abstract the price earnings relation can be characterized as a system of simultaneous equations earnings and prices can behave as if they are both endogenously determined because they are jointly affected by information that is difficult to specify explicitly specification tests provide evidence that both earnings changes and price changes are endogenous the price and earnings coefficients increase from ols to joint estimation and under a restrictive set of assumptions provide increasingly similar estimates of the permanent component of earnings the evidence is consistent with the contention that a portion of the single equation bias can be mitigated via joint estimation

bond and stock market response to unexpected earnings announcements this study examines whether earnings changes convey information in bond markets and finds a significant positive negative reaction to unexpected earnings increases decreases the results are consistent whether earnings announcements precede or follow dividend announcements thus earnings surprises convey information to bond markets and changes in firm value are split among bondholders and stockholders this is in contrast to evidence from studies examining unexpected dividend announcements where bond price reaction is asymmetric cross sectional analysis reveals that bond excess returns are positively related to earnings surprises i introduction stock market reaction to earnings announcements has received significant attention in the finance and accounting literature ball and brown 1968 brown 1978 watts 1978 aharony and swary 1980 and fried and givoly 1982 are some ofthe studies that observe a revision of stock prices associated with the release of earnings information lev 1989 provides a survey of research in this area the explanation for the above empirical findings is that unexpected earnings provide new information about future cash flows furthermore the classical discounted cash flow model predicts a revision in firm value that is the present value of expected future cash flows whether this increased firm value accrues to stockholders and bondholders is an empirical issue past research on the information content of earnings has focused solely on stock price behavior and finds at least part of the benefits accrue to stockholders in this study we examine the bond market reaction to unexpected quarterly earnings announcements the study is unique for several reasons first dividends repurchases and earnings are eonsidered primary mechanisms used by manage ment to convey information about future cash flows to securityholders recent

earnings news and small traders an intraday analysis abstract this study separates trading volume into buyer and seller initiated activities and examines the directional volume reaction in small and large trades to different types of earnings news good bad news triggers brief but intense buying selling in the large trades however a persistent period of unusually high buying activity is observed in the small trades irrespective of the news this anomalous proclivity of small traders to buy is robust across firm size trading volume and different earnings expectation models several explanations are discussed although the behavior does not seem fully explained by existing theories

profitability of momentum strategies in international markets the role of business cycle variables and behavioural biases the paper investigates whether business cycle variables and behavioural biases can explain the profitability of momentum trading in three major european markets unlike previous studies the paper nests both risk based and behavioural based variables in a two stage model specification in an attempt to explain momentum profits the findings show that although momentum profitability in european markets is unexplained by conditional asset pricing models it is attributable to asset mispricing that systematically varies with global business conditions in addition behavioural variables do not appear to matter much thus risk factors which are undetected thus far and are largely attributable to the business cycle could explain the momentum payoffs in european stock markets

an analysis of the probability of default on federally guranteed student loans federally insured student loans constitute an area that is almost completely unexplored by researchers despite intense scrutiny that federally insured loans are receiving after the savings and loan collapse based on a probit model of default for two thousand guaranteed student loans the authors find that individual characteristics including parents income presence of two parents at home student s graduation and student s race have a significant impact on default rates while institutional characteristics four year vs two year college private vs public school size and individual school dummies have little significant effect the results imply that proposals to penalize colleges with high default rates are premature copyright 1992 by mit press

the information content of losses abstract this study hypothesizes that because shareholders have a liquidation option losses are not expected to perpetuate they are thus less informative than profits about the firm s future prospects the results are consistent with the hypothesis they also show that the documented increase in the earnings response coefficent as the cumulation period increases appears to be due exclusively to the effect of losses the liquidation option effect extends to profitable cases where earnings are low enough to make the option attractive alternating explanations for the low informativeness of losses such as mean reversal of earnings are not supported by the tests

market structure informed trading and analysts recommendations we examine stock price behavior in response to initial coverage buy recommendations that are pre released to important clients before the stock market opens and find a strong positive valuation effect at the open on average it takes five minutes of trading for nyse amex stocks and 15 minutes for nasdaq stocks to reflect the private information contained in these analyst recommendations so when informational asymmetry is high the centralized call market is more efficient than a competitive but fragmented dealer market public news release leaves share prices unaltered overall competition among informed traders causes private information to be rapidly incorporated into stock prices

the relative and complementary performance of analyst and security price based measures of expected earnings abstract this paper evaluates the relative performance of ibes consensus financial analyst forecasts and forecasts based upon the anticipatory behaviour of security prices according to two criteria a the accuracy of earnings growth predictions and b the contemporaneous association between unexpected earnings and security returns during the forecast year results are presented for firms in differing size groups measured here by market capitalization the results indicate that neither forecast source is superior to the other in terms of either criterion there is however significant complementarity of financial analyst and price based forecasts

american ambivalence towards abortion policy development of a heteroskedastic probit model of competing values theory using elaboration likelihood models and insights from the recent core beliefs literature we show that conflicting core beliefs lead to ambivalence about policy choices hypotheses policy choices about abortion are heterogeneous this heterogeneity across individuals is a function of the underlying conflict in their beliefs about the role of women and the sanctity of human life methods a heteroskedastic probit model is developed to test the hypotheses results heterogeneity is observed for six of seven abortion policy choices when core values conflict respondents are more ambivalent in their policy responses and more difficult for our standard models to predict

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

the association between accounting earnings and security returns for large and small firms abstract the differential information hypothesis advanced by atiase 1980 states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size this study examines two corollaries of that hypothesis first security prices of large firms anticipate accounting earnings earlier than security prices of small firms second for a given level of unexpected earnings the cumulative abnormal returns of small firms exceed those of large firms the results are generally consistent with atiase s hypothesis

option listing and the stock price response to earnings announcements abstract we examine the effect of option listing on the immediate stock price response to earnings announcements contrary to prior studies using earlier data we find firms initiating option trading after 1986 fail to exhibit a significant decline in earnings response we then examine 420 firms initiating option trading during 1973 1993 in a series of tests controlling for market wide effects and changing firm size we find some evidence that option listing may actually increase the stock price response to earnings but no evidence listing reduces the response both longitudinal and cross sectional tests produce similar results

accounting information and corporate governance market and analyst reactions to earnings of firms engaged in proxy contests abstract this paper studies market and analyst reactions to earnings i during a proxy contest for board seats and ii after a proxy contest induced management change despite indications of earnings management during the proxy contest market and analyst reactions are more pronounced than in prior periods and earnings surprises explain more of the cross sectional variation in these reactions market and analyst reactions to earnings released after a successful proxy contest are less pronounced than in prior periods and earnings surprises explain less of the variation in these reactions perhaps due to new managements tendency to take an earnings bath

predictability in financial analyst forecast errors learning or irrationality in this paper we propose a rational learning based explanation for the predictability in financial analysts earnings forecast errors documented in prior literature in particular we argue that the serial correlation pattern in analysts quarterly earnings forecast errors is consistent with an environment in which analysts face parameter uncertainty and learn rationally about the parameters over time using simulations and real data we show that the predictability evidence is more consistent with rational learning than with irrationality fixation on a seasonal random walk model or some other dogmatic belief

firm size and the information content of prices with respect to earnings abstract beaver lambert and morse 1980 suggest that prices may be useful in forecasting future earnings we explore the information content of prices with respect to earnings by focusing on firm size and its relation to the predictive accuracy of price based earnings forecasts firm size proxies for the amount of information and for the number of traders and professional analysts processing the available information about an enterprise our empirical results are consistent with the hypothesis that price based earnings will outperform univariate time series forecasts by a greater margin for larger firms than for smaller firms

on cross sectional analysis in accounting research abstract this paper examines cross sectional analysis procedures common to many market based accounting research papers both the economic and econometric properties of levels and returns studies are discussed topics covered include the relations between the accounting studies and cash flow valuation models the role of expectations of accounting variables deflators spurious inference risk adjustment and its relation to growth size and leverage residual dependence dependence among explanatory variables and the effect of scale differences across firms major conclusions are that market value is the correct deflator in returns studies and that levels and returns studies are economically but not econometrically equivalent

fair value disclosures by bank holding companies abstract this paper examines the value relevance of fair value data disclosed under sfas 107 by banks for 1992 and 1993 collectively the evidence suggests differences between fair and book values of financial instruments are associated with market to book ratios however fair value disclosures for financial instruments other than securities are value relevant only in limited settings in addition only in 1992 are fair value variables associated with market to book ratios after incorporating existing historical cost information further analysis suggests the weaker 1993 results are not necessarily due to increased measurement error in fair value numbers

applying reverse regression techniques in earnings return analyses abstract measurement error in unexpected earnings is recognized as a source of bias in examinations of the relation between earnings and returns reverse regression procedures are commonly used as a means of coping with this bias this study examines the properties of reverse regression procedures in multi interacted variable settings with a specific focus on the earnings response coefficient erc analysis of collins and kothari j account econom 11 1989 143 it shows that both conventional reverse regression techniques and novel techniques employed by collins and kothari are not robust it also demonstrates how reverse regression techniques can be successfully employed in such settings using non interacted variable designs

price and trading volume reaction surrounding earnings announcements a closer examination the process of information dissemination and interpretation in securities markets is very complex and mostly unobservable while changes in prices and the amount of trading that takes place at the market level provide evidence of information processing verrecchia 1981 demonstrated that these are not sufficient to describe completely the dissemination of information and its interpretation by investors a descriptive study of price changes and trading volume however may still provide some insights into how investors react to information this paper is an empirical investigation of price changes and trading volume during the days surrounding the announcement of quarterly and annual earnings in the wall street journal wsj in the original paper investigating trading volume and price changes surrounding earnings announcements beaver 1968 was primarily concerned with whether the annual earnings announcement had information content i e led to changes in investors assessments of the probability distribution of future returns if there were any significant price changes and or trading volume during the week of the announcement then the annual earnings announcement was assumed to have had

credit constraints and demand for higher education evidence from financial deregulation abstract we use staggered banking deregulation across states in the united states to examine the impact of the resulting increased credit supply on college enrollment from the 1970s to the early 1990s our research design produces estimates that are not confounded by wealth effects due to changes in income or housing wealth we find that lifting banking restrictions raises college enrollment by about 2 6 percentage points 4 9 we rule out alternative interpretations by examining results for different income groups and bankrupt households we also find similar effects for two year or four year college completion and supporting evidence in household educational borrowing

the southern wage gap human capital and the quality of education this suggests that school quality can play an important role in explaining the racial wage gap welch 28 and smith 19 both provide anecdotal evidence that relates the narrowing of school quality to the falling racial gap in earnings the rising rate of return for black workers on years of school documented by weiss and williamson 27 welch 28 and smith and welch 20 also is consistent with the improving quality of their education nevertheless school quality has not been incorporated into systematic statistical analysis of the racial wage gap this is the main focus of this paper i examine 15 southern states which had data on the segregated white and black school systems i have attempted to link the demonstrated lower quality of education during segregation in the south to the persistent southern wage gap in addition i have tried to

reservation wages and their labor market effects for black and white male youth this paper presents an empirical analysis of self reported reservation wages for unemployed young black and white males the results show that young blacks seek wages which are comparable to those of young whites in absolute terms but which are higher relative to what is available on the demand side of the market these relatively higher reservation wages of young blacks contribute to their unemployment durations and somewhat to their subsequently received wages changes in reservation wages may thus help to explain the trends in wages and employment of young blacks in recent years

association between accounting performance measures and stock prices a test of the life cycle hypothesis abstract this paper posits that stock market response to two accounting performance measures sales growth and capital investment is a function of firm life cycle stage firms are grouped into various life cycle portfolios using dividend payout sales growth and age as predicted the empirical results indicate a monotonic decline in the response coefficients of unexpected sales growth and unexpected capital investment from the growth to the stagnant stages additional analysis suggests that this relation is not driven by a firm size effect risk differences or measurement error in the proxies for performance measures

the emergence persistence and recent widening of the racial unemployment gap census data show that the ratio of black to white unemployment rates currently in excess of 2 1 was small or nonexistent before 1940 widened dramatically during the 1940s and 1950s and widened again in the 1980s the authors decompose changes in the unemployment gap over the years 1880 1990 to identify the separate contributions of changes in observable worker characteristics and shifts in labor demand nearly all of the widening of the gap during the 1940s and 1950s can be attributed to regional shifts of workers and declining demand in markets where black workers were concentrated after 1970 improvements in the relative educational status of black workers would have narrowed the unemployment gap slightly but demand shifts adverse to black workers more than canceled out these gains

prediction performance of earnings forecasts the case of u s multinationals prior accounting research has provided evidence of the information content of a company s actual or predicted accounting earnings prior studies have also found that factors such as firm size industry or systematic risk influence the accuracy of the earnings predictions this study investigates the accuracy and the consensus among forecasters of earnings estimates for u s domestic and u s multinational corporations companies were classified into a domestic or multinational type for this research following the criteria established by statement of financial accounting standards no 14 for required disclosure of foreign operations the empirical results indicate that the accuracy of earnings forecasts is significantly lower for purely domestic firms than for u s based multinationals likewise the level of consensus in earnings estimates submitted by financial analysts is significantly lower for u s domestic than for u s multinational firms

cephalon inc taking risk management theory seriously cephalon inc a biotech firm bought call options on its own stock to meet its conditional cash flow needs we analyze this decision by using the cash flow hedging concepts of froot et al 1993 journal of finance 5 1629 1658 we identify the managerial analyses necessary to apply this theory and discuss managerial considerations absent from the theory we find that managers consider deadweight costs of risk management which theory tends to ignore theory provides little guidance in how to measure these and other deadweight costs finally uncertainty about the availability of external financing and accounting considerations are critical considerations by managers

black white differences in wealth and asset composition using data from the 1976 and 1978 national longitudinal surveys of young men and young women this study examines racial differences in the magnitude and composition of wealth and the reasons for them on average young black families hold 18 percent of the wealth of young white families and hold their wealth in proportionately different forms even after controlling for racial differences in income and other demographic factors as much as three quarters of the wealth gap remains unexplained we speculate on the causes for this concluding that racial differences in intergenerational transfers and to a lesser extent barriers to the accumulation of business and home equity most likely play a role

firm geographic dispersion and financial analysts forecasts using a text based measure of geographic dispersion that captures the economic ties between a firm and its geographically distributed economic interests this study provides evidence that financial analysts issue less accurate more dispersed and more biased earnings forecasts for geographically dispersed firms we observe the degree to which a firm has an overlapping distribution of economic centers in comparison to industry competitors and suggest that geographically similar firms have lower information gathering costs and thereby more precise earnings forecasts empirical evidence supports this prediction we further find that the geographic dispersion across the u s is less likely to affect forecast precision when a firm has economic activities in states with highly correlated local shocks our findings suggest that the effect of geographic dispersion is more pronounced for soft information environments where information is more difficult to make impersonal by using technological advances consistent with the information asymmetry argument we find that geographically dispersed firms have less comparable and more discretionary managed earnings have less extensive than industry competitors segment information are more likely to restate sale segment information and issue annual and quarterly filings with a delay

the incremental information content of replacement cost earnings abstract the study explores the incremental explanatory power of replacement cost earnings variables derived from asr 190 data with respect to explaining cross sectional differences in security returns as such the study is a natural extension of previous research including analyses of the effect of security returns of asr 190 data at the time of disclosure investigations of cross sectional relationships between security returns and historical cost earnings and studies of multiple signals the basic finding is that pre holding gain net income provides no incremental explanatory powerm given knowledge of historical cost earnings however the converse does not hold taken together the findings are consistent with the contention that pre holding gain net income is a garbled version of historical cost earnings the basic finding is robust under several extensions of the initial research design the research design incorporates a two stage approach which permits a determination of the incremental explanatory power of collinear variables the findings are in contrast to those of a previous study by easman et al 1979 the nature of the difference in research design inducing the difference is identified potential reasons for the difference in findings are provided

disclosures and asset returns public information in financial markets often arrives through the disclosures of interested parties who have a material interest in the reactions of the market to the new information when the strategic interaction between the sender and the receiver is formalized as a disclosure game with verifiable reports equilibrium prices can be given a simple characterization in terms of the concatenation of binomial pricing trees there are a number of empirical implications the theory predicts that the return variance following a poor disclosed outcome is higher than it would have been if the disclosed outcome were good also when investors are risk averse this leads to negative serial correlation of asset returns other points of contact with the empirical literature are discussed

earnings announcements and competing information abstract we investigate whether competing information primarily analyst reports reduces the usefulness of earnings announcements inconsistent with the view that information in analyst reports substitutes for earnings announcements we find a positive relation between absolute abnormal returns to the two types of disclosures this positive relation also characterizes subsequent period analyst reports relative to current period earnings announcements we also find that aggregate absolute reactions to both types of disclosures increased over 1986 1995 as a whole these results provide little support for the view that the informativeness of earnings announcements is eroded by competing information in the form of analyst reports

econometrics of the basu asymmetric timeliness coefficient and accounting conservatism a substantial literature investigates conditional conservatism defined as asymmetric accounting recognition of economic shocks news and how it depends on various market political and institutional variables studies typically assume the basu 1997 asymmetric timeliness coefficient the incremental slope on negative returns in a piecewise linear regression of accounting income on stock returns is a valid conditional conservatism measure we analyze the measure s validity in the context of a model with accounting income incorporating different types of information with different lags and with noise we demonstrate that the asymmetric timeliness coefficient varies with firm characteristics affecting their information environments such as the length of the firm s operating and investment cycles and its degree of diversification we particularly examine one characteristic the extent to which unbooked information such as revised expectations about rents and growth options is independent of other information and discuss the conditions under which a proxy for this characteristic is the market to book ratio we also conclude that much criticism of the basu regression misconstrues researchers objectives

wealth information acquisition and portfolio choice i solve with an approximation a grossman stiglitz economy under general preferences thus allowing for wealth effects because information generates increasing returns decreasing absolute risk aversion in conjunction with the availability of costly information is sufficient to explain why wealthier households invest a larger fraction of their wealth in risky assets one no longer needs to resort to decreasing relative risk aversion an empirically questionable assumption furthermore i show how to distinguish empirically between these two explanations finally i find that the availability of costly information exacerbates wealth inequalities copyright 2004 oxford university press

book rate of return and prediction of earnings changes an empirical investigation over the years there has developed a fairly substantial body of research on the time series of earnings as a whole this literature concludes that changes in annual accounting earnings are unpredictable that is earnings follow a random walk 1 based on this result some inferences of economic substance policy have been claimed 2 in this paper we reconsider empirical issues which at least to some extent have been obscured by this conclusion we argue that the above result is only true in a limited sense since a modest enlargement of the predictive information set should allow for a rejection of the hypothesis that earnings changes are

firm characteristics and analyst following abstract this paper examines the major determinants of the number of analysts following a firm a simple model of analyst following is proposed and several firm characteristics are suggested that are likely to influence the extent of a firm s analyst following by either affecting the aggregate demand for or supply of analyst services or both for the firm almost all of these characteristics are found to be strongly significant in affecting the extent of analyst following of firms and the empirical results generally accord well with economic intuition