Earnings Surprises, Growth Expectations, and Stock Returns:

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Cumulative Return 20 15 10 5 0 -5 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Years Since Portfolio Formation Figure 4 Cumulative average abnormal return for a MB (market-to-book) hedge portfolio over the five years following portfolio formation. The hedge portfolio consists of a long position in the lowest quintile of MB stocks and a short position in the highest quintile of MB stocks for each of the firm-quarters in our sample. Returns for the first half of each year are cumulated over the four quarterly ‘Preret’ periods during which very little earnings information is typically released. Returns for the second half of each year are cumulated over the four quarterly ‘Postret’ periods, during which most earnings information is typically released. 41
Abnormal Return 0.2 0.15 0.1 0.05 0 -0.07 -0.05 -0.03 -0.01 0.01 0.03 0.05 0.07 -0.05 -0.1 -0.15 -0.2 Forecast Error GROWTH VALUE Figure 5 Earnings surprise response functions for value and growth stocks. This graph plots the quarterly abnormal returns for value and growth stocks respectively as a function of the magnitude of the quarterly earnings forecast error. Each plot is formed by dividing the stocks into 20 portfolios based on the magnitude of the forecast error, and then plotting the mean portfolio abnormal returns and forecast errors. The resulting points are joined using smoothed lines. 42
Page 1 and 2: Earnings Surprises, Growth Expectat
Page 3 and 4: Our paper also resolves the inconcl
Page 5 and 6: Our first example is the case of Or
Page 7 and 8: Our first prediction concerns the r
Page 9 and 10: and growth stocks is concentrated i
Page 11 and 12: 3. Sample and research design We ob
Page 13 and 14: constructed by allocating all firm-
Page 15 and 16: on the sign of the earnings surpris
Page 17 and 18: esult if they miss and report a neg
Page 19 and 20: and then track the mean stock retur
Page 21 and 22: to positive and negative surprises.
Page 23 and 24: As an alternative specification, we
Page 25 and 26: Turning to the regression results i
Page 27 and 28: Consistent with our predictions, th
Page 29 and 30: interest of brevity, we only report
Page 31 and 32: 4.3 Alternative measures of growth
Page 33 and 34: MRET(HML)t = -.010 + .090*MSURP(HML
Page 35 and 36: plausible, since it implies that th
Page 37 and 38: References Barberis, Nicholas, Andr
Page 39 and 40: Figure 1 Summary financial statisti
Page 41: Figure 3 Illustration of the altern
Page 45 and 46: Table 2 Mean Quarterly Abnormal Sto
Page 47 and 48: Quarters from: (number of obs.) Yea
Page 49 and 50: Period (obs.) Intercept Growth Year
Page 51 and 52: Quarters from: (no. of obs.) Year 1
Page 53 and 54: Table 5 Estimated Coefficients (adj
Page 55 and 56: Quarters from: (no. of obs.) Year 5
Page 57 and 58: Return Measurement Interval Fullret
Page 59: Growth Measure MB .0065 (5.36) MB .

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