Search

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2005.05.005 Byline: Tarun Chordia (a), Lakshmanan Shivakumar (b) Keywords: Post-earnings announcement drift; Price momentum; Earnings momentum; Market efficiency; Macroeconomy Abstract: This paper examines whether earnings momentum and price momentum are related. Both in time-series as well as in cross-sectional asset pricing tests, we find that price momentum is captured by the systematic component of earnings momentum. The predictive power of past returns is subsumed by a zero-investment portfolio that is long on stocks with high earnings surprises and short on stocks with low earnings surprises. Further, returns to the earnings-based zero-investment portfolio are significantly related to future macroeconomic activities, including growth in GDP, industrial production, consumption, labor income, inflation, and T-bill returns. Author Affiliation: (a) Goizueta Business School, Emory University, Atlanta, GA 30322, USA (b) London Business School, London NW1 4SA, UK Article History: Received 24 November 2004; Revised 31 March 2005; Accepted 23 May 2005 Article Note: (footnote) [star] We thank an anonymous referee, Ray Ball, Michael Brennan, Greg Clinch, Francisco Gomes, Paul Irvine, Narasimhan Jegadeesh, Josef Lakonishok, Maureen McNichols, Stefan Nagel, Bhaskaran Swaminathan, Jacob Thomas, and seminar participants at Case Western University, London Business School, University of Chicago, University of Rochester, and the LBS accounting symposium for helpful comments. The second author was supported by the Dean's Fund for Research at the London Business School. All errors are our own.

The implications of previous studies conducted to analyze the impact of cash flows on stock prices are examined to determine post-earnings announcement drift.

A new study aims to improve the methodology for estimating event-specific earnings management. The study uses a modification of the cross-sectional Jones model and tests its specification. It is shown that the model provides systematically positive (negative) estimates of abnormal accruals for companies where cash flow is below (above) the industry median. Details of the study are presented.