Earnings Surprise Research: Synthesis and Perspectives

7 Pages Posted: 7 May 2008

See all articles by Lawrence D. Brown

Lawrence D. Brown

Temple University - Department of Accounting

Date Written: 1997

Abstract

An investigation of the relation between earnings surprise and three empirical anomalies-the P/E effect, the size effect, and the Value Line enigma-indicates that the standardized unexpected earnings (SUE) effect appears to be separate and distinct from each of the three. The relations between the SUE phenomenon and firm risk, the appropriateness of the earnings expectations model, and the role of transaction costs are also investigated. The SUE phenomenon is not attributable to inappropriate risk adjustment, use of the "wrong" earnings expectations model, or ignoring transaction costs. The SUE effect may be partly explained by analysts' behavior and is both predictable and profitable. The SUE effect has also been observed in Japan.

Suggested Citation

Brown, Lawrence D., Earnings Surprise Research: Synthesis and Perspectives (1997). Financial Analysts Journal, Vol. 53, No. 2, 1997. Available at SSRN: https://ssrn.com/abstract=1129914

Lawrence D. Brown (Contact Author)

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

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