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In Search of Fundamentals

36 Pages Posted: 22 Apr 2010 Last revised: 16 Mar 2011

Zhi Da

University of Notre Dame - Mendoza College of Business

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

Pengjie Gao

University of Notre Dame - Mendoza College of Business

Date Written: March 15, 2011

Abstract

We use search volume for firms' products to predict revenue surprises, earnings surprises and earnings announcement returns. We find that increases (decreases) in the search volume index (SVI) of a firm's most popular product strongly predicts positive (negative) revenue surprises. This predictive power is weaker for standardized unexpected earnings (SUE). SVI has strong predictability for returns around earnings announcements, especially among firms with few products, growth firms and firms that manage their reported earnings. Taken together, the evidence suggests that search volume for a firm's products is a value-relevent leading indicator about a firm's future cashflow that the market does not fully incorporate into prices until the earnings announcement.

Keywords: Search Volume, Earnings Surprises, Revenue Surprises

JEL Classification: G10, G14

Suggested Citation

Da, Zhi and Engelberg, Joseph and Gao, Pengjie, In Search of Fundamentals (March 15, 2011). AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1589805 or http://dx.doi.org/10.2139/ssrn.1589805

Zhi Da

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Joseph Engelberg (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Pengjie Gao

University of Notre Dame - Mendoza College of Business ( email )

246 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-8048 (Phone)

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