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Earnings dispersion and aggregate stock returns

Jorgensen, Bjorn N. and Li, Jing and Sadka, Gil (2012) Earnings dispersion and aggregate stock returns. Journal of Accounting and Economics, 53 (1-2). pp. 1-20. ISSN 0165-4101

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Identification Number: 10.1016/j.jacceco.2011.06.001

Abstract

This paper studies the relation between aggregate stock returns and contemporaneous and future cross-sectional earnings dispersion. We hypothesize that increases in expected earnings dispersion signal increases in uncertainty and increases in unemployment, thereby causing expected returns to rise, which in turn causes prices to decline. We find a positive relation between aggregate stock returns and contemporaneous earnings dispersion because higher earnings dispersion is associated with higher expected returns. Consequently, we also find a negative relation between aggregate stock returns and future (one-year ahead) earnings dispersion, as investors anticipate higher future earnings dispersion and higher expected returns.

Item Type: Article
Official URL: http://www.sciencedirect.com/science/journal/01654...
Additional Information: © 2011 ElsevierB.V.
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
Sets: Departments > Accounting
Collections > Economists Online
Date Deposited: 18 Jul 2013 15:21
Last Modified: 02 Sep 2013 08:55
URI: http://eprints.lse.ac.uk/id/eprint/50679

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