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Paper Stats:
Abstract Views: 1710
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How Naive Is the Stock Market's Use of Earnings Information?
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RAY BALL
University of Chicago
ELI BARTOV
New York University
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Abstract:
Rendleman Jones and Latane (1987) and Bernard and Thomas (1990) report evidence supporting their hypothesis that investors use a "naive" seasonal random walk model in forming expectations of quarterly earnings. Using the Bernard and Thomas (1990) data we show that the market acts as if it: (1) does not use a seasonal random walk model; (2) does incorporate past earnings changes in forming expectations; (3) does use the correct signs in exploiting serial correlation in seasonally-differenced quarterly earnings; but (4) underestimates the magnitude of the serial correlation. This evidence remains anomalous in the sense that it is consistent with neither the theory of efficient markets nor the "naive expectation model" hypothesis nor "behaviorial finance" theories.
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JEL Classifications: G41
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Working Paper Series
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Contact Information for
RAY
BALL
(Contact Author)
Email address for RAY
BALL
University of Chicago
Chicago
, IL
60637
United States
773-834-5941 (Phone)
773-702-0458 (Fax)
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Contact Information for
ELI
BARTOV
Email address for ELI
BARTOV
New York University
40 W. 4th St., 423
New York
, NY
10012
United States
212-995-4004 (Fax)
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