Business Cycles and the Relation between Security Returns and Earnings

Business Cycles and the Relation between Security Returns and Earnings This paper examines business cycle variation in the earnings-returns relation. Earnings are more persistent when growth rates are high (i.e., in an expansion) than when growth rates are low (i.e., in a recession). Earnings are more persistent when production is high (i.e., in a credit crunch period) than when production is low (i.e., in a reliquification period). Relatedly, earnings response coefficients are larger in expansions (credit crunch periods) than in recessions (reliquification periods). Thus, earnings persistence and earnings response coefficients are positively associated with the rate of growth in economic activity and the level of economic activity. Review of Accounting Studies Springer Journals

Business Cycles and the Relation between Security Returns and Earnings

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Kluwer Academic Publishers
Copyright © 1999 by Kluwer Academic Publishers
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
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