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Long-Term Evidence on the Effect of Aggregate Earnings on Prices

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  • Yunhao Chen
  • Xiaoquan Jiang
  • Bong-Soo Lee

Abstract

type="main"> We examine the time-series properties and determinants of the relation between aggregate earnings information and stock prices (aggregate earnings response coefficient or AERC) employing return decompositions with data since 1871. We confirm that AERC is negative even though firms respond positively to individual firm earnings information, but we also find that AERC is time varying. Furthermore, we show that AERC components based on expected earnings, cash flows, and discount rates are also time varying and differ in relative importance.

Suggested Citation

  • Yunhao Chen & Xiaoquan Jiang & Bong-Soo Lee, 2015. "Long-Term Evidence on the Effect of Aggregate Earnings on Prices," Financial Management, Financial Management Association International, vol. 44(2), pages 323-351, June.
    • Handle: RePEc:bla:finmgt:v:44:y:2015:i:2:p:323-351
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