Stock Prices and Earnings: A History of Research
Annual Review of Financial Economics, Vol. 6: 343 -363 (Volume publication date December 2014).
41 Pages Posted: 30 Oct 2013 Last revised: 26 Feb 2015
Date Written: October 18, 2013
Accounting earnings summarize periodic corporate financial performance and are key determinants of stock prices. We review research on the usefulness of accounting earnings, including research on the link between accounting earnings and firm value and research on the usefulness of accounting earnings relative to other accounting and nonaccounting information. We also review research on the features of accounting earnings that make them useful to investors, including the accrual accounting process, fair value accounting, and the conservatism convention. We finish by summarizing research that identifies situations in which investors appear to misinterpret earnings and other accounting information, leading to security mispricing.
Keywords: earnings, stock prices, accruals, conservatism, fair value, anomalies
JEL Classification: G12, M41
Suggested Citation: Suggested Citation