This paper examines the predictive performance of two representative agent models of earnings momentum using the US S & P 500 sample frame in the years 1991–2006. For successive sequences of quarterly earnings outcomes over a three year horizon of quarterly increases/decreases, etc., we ask whether these models can capture the likelihood of reversion and, secondly, the stock market response to observed quarterly earnings change sequences for our chosen sample. We find evidence of a far greater frequency of persistent quarterly earnings rises and hence a more muted reaction to their occurrence. Persistent losses are both far less common and more salient in their impact on stock prices.
Review of Quantitative Finance and Accounting – Springer Journals
Published: Nov 8, 2013
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