Keywords: Behavioral Finance, Earnings Announcements, Efficient Market Hypothesis, Extrapolative Beliefs, Stock Returns
JEL codes: G12, G14, G40
학회소식
[2022년 5차 CAFM2022]Earnings Extrapolation and Predictable Stock Market Returns
작성자 : 관리자
조회수 : 327
게시일 :
2022-12-20
The U.S. stock market’s return during the first month of a quarter correlates strongly with returns in future months, but the correlation is negative if the future month is the first month of a quarter, and positive if it is not. These effects offset, leaving the market return with its weak unconditional predictive ability known to the literature. The pattern accords with a model in which investors extrapolate announced earnings to predict future earnings, not recognizing that earnings in the first month of a quarter are inherently less predictable than in other months. Survey data support this model, as does out-of-sample return predictability across industries and international markets. These results challenge the Efficient Market Hypothesis and advance a novel mechanism of expectation formation.
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