Abstract

http://ssrn.com/abstract=55467
 
 

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How Naive Is the Stock Market's Use of Earnings Information?


Ray Ball


University of Chicago

Eli Bartov


New York University



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.

JEL Classification: G41

working papers series


Not Available For Download

Date posted: February 24, 1998  

Suggested Citation

Ball, Ray and Bartov, Eli, How Naive Is the Stock Market's Use of Earnings Information?. Available at SSRN: http://ssrn.com/abstract=55467

Contact Information

Ray Ball (Contact Author)
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-5941 (Phone)
773-702-0458 (Fax)
Eli Bartov
New York University ( email )
40 W. 4th St., 423
New York, NY 10012
United States
212-995-4004 (Fax)
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