The Relationships between Aggregate Earnings and Stock Returns : The Taiwan Evidence
|Keywords:||股票報酬;盈餘;迴歸分析;盈餘誤差;不完美盈餘;累計盈餘;資訊內涵;return;earning;regression analysis;errors in earnings;imperfect earnings;Aggregate Earnings;asymmetry information content|
The relationships between stock returns and the accounting earnings have been studied intensively. The relationships between earnings and returns during a time period and the application of financial statement analysis in the prediction of stock returns are most popular ones among various approaches. Although such topics are so popular, the time period of calculated stock returns and accounting earnings are all short-term time interval (from one year, several months to one day). Even though the issues underlying the annual and shorter return interval studies differs, the results of both forms of empirical analysis have been similarly disappointed in the sense of unimpressive correlations between returns and earnings. There is always low R2 under the return-earning regression analysis. In other words, the empirical findings suggest that earnings have low explanatory power to returns. Under the assumption of earnings as a natural variable for explaining stock earnings, the paper expand the interval over which earnings and returns are determined to minimize the effects of the asymmetry information contents between returns and earnings (errors in earnings and imperfect earnings) which leads to low explanatory power of earnings. This paper aggregates the annual earning during different period to get the long term earnings. The relationships between long term aggregate earnings and stock returns are compared with that for the short term interval. The empirical findings support the hypothesis that long term interval eliminate the effects of the asymmetry information content.
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