Discussion of “The Role of Expectations in Explaining the Cross-Section of Stock Returns”

Discussion of “The Role of Expectations in Explaining the Cross-Section of Stock Returns” This paper discusses Copeland et al. (2004), which empirically investigates the role of changes in expectations in explaining contemporaneous cross-sectional stock returns. Because the main results in this study are largely confirmatory of results reported in prior literature, my discussion emphasizes conceptual issues in the econometric specification of earnings–return relations. I derive three versions of return specifications from popular valuation models based on residual earnings, free cash flows, or earnings growth, and contrast them with that adopted by Copeland et al. (2004). This analysis suggests that firmer grounding in theory would help the paper in empirical specifications as well as interpretations of results. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “The Role of Expectations in Explaining the Cross-Section of Stock Returns”

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2004 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/B:RAST.0000028185.77089.ef
Publisher site
See Article on Publisher Site

Abstract

This paper discusses Copeland et al. (2004), which empirically investigates the role of changes in expectations in explaining contemporaneous cross-sectional stock returns. Because the main results in this study are largely confirmatory of results reported in prior literature, my discussion emphasizes conceptual issues in the econometric specification of earnings–return relations. I derive three versions of return specifications from popular valuation models based on residual earnings, free cash flows, or earnings growth, and contrast them with that adopted by Copeland et al. (2004). This analysis suggests that firmer grounding in theory would help the paper in empirical specifications as well as interpretations of results.

Journal

Review of Accounting StudiesSpringer Journals

Published: Sep 30, 2004

References

  • A General Affine Earnings Valuation Model
    Ang, A.; Liu, J.
  • The Cross-Section of Expected Stock Returns
    Fama, E. F.; French, K. R.
  • Industry Costs of Equity
    Fama, E.; French, K.
  • The Information Content of Losses
    Hayn, C.

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