The Usefulness of Earnings Numbers in Explaining Stock Returns in an Emerging Market: The Case of Serbia

2012 Proceedings of the 7th International Conference on Currency, Banking and International Finance: How Does Central and Eastern Europe Cope up with the Global Financial Crisis?

16 Pages Posted: 17 Sep 2013 Last revised: 13 Nov 2014

See all articles by Vesna Janjic

Vesna Janjic

Independent

Milan Cupic

University of Kragujevac - Faculty of Economics

Mirjana Todorovic

University of Kragujevac - Faculty of Economics

Date Written: 2012

Abstract

The relationship between accounting earnings and stock returns was subject of numerous studies over the past forty years. The first study of this relationship conducted by Ball and Brown in 1968 was the basis for many subsequent studies. Given the specific economic environment and less developed capital markets, these studies are relatively rare in transition economies. In the present study we investigate the relationship between accounting earnings and stock returns in a relatively underdeveloped Serbian capital market from 2006 to 2011. We use three regression specifications, namely the price, return and differenced model. The results suggest that earnings levels, both scaled and unsealed, have value relevancy on the Serbian capital market. We find no significant earnings response coefficients in various specifications of the differenced model. We also find evidence that stock prices lead accounting earnings and that negative earnings are more transitory than the positive earnings.

Keywords: accounting earnings, stock returns, financial crisis

JEL Classification: M41, G11, G01

Suggested Citation

Janjic, Vesna and Čupić, Milan and Todorovic, Mirjana, The Usefulness of Earnings Numbers in Explaining Stock Returns in an Emerging Market: The Case of Serbia (2012). 2012 Proceedings of the 7th International Conference on Currency, Banking and International Finance: How Does Central and Eastern Europe Cope up with the Global Financial Crisis? . Available at SSRN: https://ssrn.com/abstract=2326143

Vesna Janjic

Independent ( email )

No Address Available

Milan Čupić (Contact Author)

University of Kragujevac - Faculty of Economics ( email )

Djure Pucara Starog 3
Kragujevac, 34000
Serbia
+38134303500 (Phone)
+38134303516 (Fax)

HOME PAGE: http://www.ekfak.kg.ac.rs/en/node

Mirjana Todorovic

University of Kragujevac - Faculty of Economics ( email )

Djure Pucara Starog 3
Kragujevac, 34000
Serbia

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