Good News for Value Stocks: Further Evidence on Market Efficiency
24 Pages Posted: 2 Sep 2000 Last revised: 24 Sep 2010
Date Written: October 1995
This paper examines the hypothesis that the superior return to so-called value stocks is the result of expectational errors made by investors. We study stock price reactions around earnings announcements for value and glamour stocks over a 5 year period after portfolio formation. The announcement returns suggest that a significant portion of the return difference between value and glamour stocks is attributable to earnings surprises that are systematically more positive for value stocks. The evidence is inconsistent with a risk-based explanation for the return differential.
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