Understanding the Variation in the Earnings-Return Relation: A Return Decomposition Analysis
Speaker
Abstract
| Using the return decomposition framework of Campbell (1991), we find that the insignificant earnings-return relation among firms that experience losses is driven by the strong positive relation between earnings news and the discount rate news component of returns. Earnings news is positively and significantly correlated with the cash flow news component of returns for both loss firms and profit firms. The discount rate news effect also helps explain the variation of the observed earnings-return relation across industries and over time. Our results highlight the importance of discount rate news for assessing the value relevance of accounting earnings. |
| Contact information: |
| Myra Lissenberg |
