Title: Earnings Surprises, Growth Expectations, and Stock Returns: Don't Let an Earnings Torpedo Sink Your Portfolio
Abstract:It is well-established that the realized returns of ?growth? stocks have been low relative to other stocks. We show that this phenomenon is explained by a large and asymmetric response to negative ear...It is well-established that the realized returns of ?growth? stocks have been low relative to other stocks. We show that this phenomenon is explained by a large and asymmetric response to negative earnings surprises for growth stocks. After controlling for this effect, there is no longer evidence of a stock return differential between growth stocks and other stocks. Our evidence is more consistent with investors having naively optimistic expectations about the prospects of growth stocks (e.g., Lakonishok, Shleifer, and Vishny, 1994) than with the existence of unidentified risk factors that are lower for growth stocks (e.g., Fama and French, 1992).Read More
Publication Year: 1999
Publication Date: 1999-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 711
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