An evaluation of alternative proxies for the market's assessment of unexpected earnings

Brown, Lawrence D.; Hagerman, Robert L.; Griffin, Paul A.; Zmijewski, Mark E.

doi:10.1016/0165-4101(87)90004-8

Cited by 361 publications

(173 citation statements)

References 8 publications

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“…To abstract from market-wide movements in size, I measure relative size as the firm's NYSE market value of equity fractile. I examine firm size because there is evidence that firm size is negatively related to the information content of accounting earnings releases [Atiase (1985), Brown et al (1987b), Grant (1980)]. An increase in the relative size of optioned firms, therefore, would potentially explain the smaller post-listing announcement effects.…”

Section: The Alternative 'Selection Bias' Explanationmentioning

confidence: 99%

“…Therefore, I expect to observe a smaller slope coefficient in the period after options listing, as increased measurement error attenuates the size of the measured coefficient. Brown et al (1987b) regress announcement-period abnormal returns on measures of unexpected earnings for large and small firms and find smaller slope coefficients and R-squared values for the large firms. They interpret this as evidence that measurement error in their unexpected-earnings proxy (they also use Value Line forecasts) is positively related to firm size, because 'larger firms are subject to closer scrutiny by equity analysts and earnings information of large firms generally is available earlier to the market' (p. 178).…”

Section: Conditional Information Contentmentioning

confidence: 99%

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Options markets and the information content of accounting earnings releases

Skinner

1990

Journal of Accounting and Economics

167

101

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This study documents that the information content of firms' accounting earnings releases is lower, on average, after exchange-traded options are listed on their stocks. The results are consistent with predictions that: fi) options provide investors with a more cost-effective tool for trading on information, so that (ii) more private information is produced about these firms after options listing, so that (iii) the information in earnings releases is preempted to a greater extent after options listing. However, because options listing is endogenous, it is difficult to infer from this evidence that options listitig causes these informational changes.

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Section: The Alternative 'Selection Bias' Explanationmentioning

confidence: 99%

Section: Conditional Information Contentmentioning

confidence: 99%

Options markets and the information content of accounting earnings releases

Skinner

1990

Journal of Accounting and Economics

167

101

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“…earnings news is associated with stock price declines (Brown et al 1987). Thus, shortsellers have incentives to uncover information that helps them anticipate future earnings news.…”

Section: Empirical Predictionsmentioning

confidence: 99%

Short-Sellers and Analysts as Providers of Complementary Information about Future Firm Performance

Drake

2008

SSRN Journal

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This study examines whether short-sellers and financial analysts develop complementary information about future earnings and returns and assesses whether investors can improve predictions made by each of these intermediaries using information provided by the other. The first main result is that the relative short interest ratio (shares sold short divided by total shares outstanding) contains information that is useful for predicting future earnings, beyond (i.e., incremental to) the information in analyst forecasts. I also find that analysts do not fully incorporate short interest information into their forecasts and demonstrate that analyst forecasts can be improved (i.e., can be made to be less biased and more accurate) by adjusting for short interest information. The second main result is that analyst forecast revisions contain information that is useful for predicting future abnormal returns, beyond the information in the relative short interest ratio. I demonstrate that portfolios of stocks formed based on consistent signals from short-sellers and analysts produce abnormal return spreads that are significantly larger than spreads produced by portfolios formed using signals iv from short-sellers alone. Collectively, the evidence suggests that short-sellers and analyst provide complementary information about future firm performance that is useful to investors.

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“…Long-term growth forecasts are essential because of their influence on valuation estimates [41]. Prior literature reports that investors generally count on analysts' forecasts of long-term growth, because analysts are assumed to have information and timing advantages over model-based forecasts [41][42][43]. Specifically, the Gordon's growth model [44] documents that a price-to-dividend ratio of 30 means that a 1% increase in long-term dividend growth results in a 30% stock return.…”

Section: Long-term Growth Forecasts Of Financial Analysts and Corporamentioning

confidence: 99%

Patent Citations and Financial Analysts’ Long-Term Growth Forecasts

et al. 2017

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This paper examines the influence of patent citations, a proxy for the quality of firms' innovation outputs, on financial analysts' long-term growth forecasts for firms. We find that financial analysts are more likely to issue long-term forecasts for firms with higher patent citations. In addition, we find that financial analysts' long-term forecasts are more positive for firms with high patent citations. These results imply that patent citations increase financial analysts' coverage, and result in more positive forecasts for firms with impactful patents. Considering that financial analysts play important roles in allocating financial resources in capital markets, our findings suggest that patents are valuable assets for firms in securing capital from capital markets, and are thus essential for the sustainable growth of firms.

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An evaluation of alternative proxies for the market's assessment of unexpected earnings

Cited by 361 publications

References 8 publications

Options markets and the information content of accounting earnings releases

Options markets and the information content of accounting earnings releases

Short-Sellers and Analysts as Providers of Complementary Information about Future Firm Performance

Patent Citations and Financial Analysts’ Long-Term Growth Forecasts

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