Aggregate Earnings and Global Equity Returns

36 Pages Posted: 25 Jul 2024

See all articles by K. Ozgur Demirtas

K. Ozgur Demirtas

Sabanci University Graduate School of Management

Yigit Atilgan

Sabanci University

A. Doruk Gunaydin

Sabanci University

Aynur Dilan Tosun

Sabanci University

Duygu Zirek

Feliciano School of Business-Montclair State University

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Abstract

This paper compares the predictive power of aggregate earnings for equity returns in international markets. We rank 51 non-US countries based on the time-series averages of their price synchronicity and market concentration measures, calculated at the firm-level using daily data. We find that aggregate earnings negatively predict one-quarter-ahead stock returns in country groups that contain less synchronous and concentrated markets, as opposed to country groups that contain more synchronous and concentrated markets. We attribute the negative predictive power of aggregate earnings to a business cycle effect since high (low) corporate earnings correspond to economic expansions (contractions) which tend to be associated with negative (positive) risk premia. However, this business cycle effect is offset by the positive relation between firm-level earnings and future stock returns that translates to the aggregate level in more synchronous and concentrated markets. Our results remain robust after controlling for various macroeconomic variables and in alternative samples.

Keywords: aggregate earnings, return predictability, price synchronicity, international asset pricing

Suggested Citation

Demirtas, K. Ozgur and Atilgan, Yigit and Gunaydin, A. Doruk and Tosun, Aynur Dilan and Zirek, Duygu, Aggregate Earnings and Global Equity Returns. Available at SSRN: https://ssrn.com/abstract=4905598 or http://dx.doi.org/10.2139/ssrn.4905598

K. Ozgur Demirtas (Contact Author)

Sabanci University Graduate School of Management ( email )

Sabanci University, School of Management
Orhanli Tuzla
Orhanlı-Tuzla, Istanbul, 34956
Turkey
(+90) 216-483-9985 (Phone)
(+90) 216-483-9699 (Fax)

Yigit Atilgan

Sabanci University ( email )

Orta Mahalle Üniversite Caddesi 27
Istanbul, Orhanli, 34956 Tuzla 34956
Turkey

A. Doruk Gunaydin

Sabanci University ( email )

School of Management
Orhanli Tuzla
İstanbul, 34956
Turkey

Aynur Dilan Tosun

Sabanci University ( email )

School of Management
Orhanli Tuzla
İstanbul, 34956
Turkey

Duygu Zirek

Feliciano School of Business-Montclair State University ( email )

Upper Montclair, NJ 07043
United States
9736554304 (Phone)
07043 (Fax)

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