Online Appendix for "Earnings Extrapolation and Predictable Stock Market Returns"

17 Pages Posted: 5 Jan 2023 Last revised: 17 Feb 2023

See all articles by Hongye Guo

Hongye Guo

The University of Hong Kong - University of Hong Kong

Date Written: January 1, 2023

Abstract

The U.S. stock market’s return during the first month of a quarter correlates strongly with returns in future months, but the correlation is negative if the future month is the first month of a quarter, and positive if it is not. These correlations offset on average, consistent with the well-known nearly zero unconditional autocorrelation, yet they are pervasive, present across industries and international markets. The pattern accords with a model in which investors extrapolate announced earnings to predict future earnings, not recognizing that earnings in the first month of a quarter are inherently less predictable. Survey data support the model.

Keywords: behavioral finance, earnings announcements, efficient market hypothesis, extrapolative beliefs, stock return autocorrelation

JEL Classification: G12, G14, G40

Suggested Citation

Guo, Hongye, Online Appendix for "Earnings Extrapolation and Predictable Stock Market Returns" (January 1, 2023). Available at SSRN: https://ssrn.com/abstract=4316030 or http://dx.doi.org/10.2139/ssrn.4316030

Hongye Guo (Contact Author)

The University of Hong Kong - University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

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