Earnings Surprises, Growth Expectations, and Stock Returns:

Table 4
Estimated Coefficients (adjusted t-statistics) from Regressions of Quarterly Stock Returns (‘Fullret’) on ‘Growth’ Portfolio
Membership, Good (Bad) News Indicator Variables Coded One if the Earnings Surprise is Positive (Negative) and Zero
Otherwise, and Interaction Terms.
Growth portfolios are MB quintiles (low MB = quintile 0, high MB = quintile 4). Growth portfolios are formed at the beginning of
Year 1, and regressions employ returns and earnings data measured over the subsequent twenty quarters, reported in annual blocks of
four quarters. We estimate regressions of the following form:
Ritτ = α + β1.Growthit + β2.Gooditτ + β3.Baditτ + β4.(Gooditτ*Growthit) + β5.(Baditτ*Growthit) + εitτ, where:
Ritτ = the market-adjusted stock return (where the market return is the CRSP value-weighted market index) for firm i in quarter tτ,
where t indexes calendar quarters and τ indexes the 20 subsequent quarters over which we estimate these regressions;
Growthit = the growth quintile into which firm i falls in quarter t (where 0 denotes the low growth quintile and 4 denotes the high
growth quintile) and growth is measured as the firm’s market-to-book (MB) ratio at the end of quarter t;
Gooditτ = 1 if FEitτ is positive, and 0 otherwise; and
Baditτ = 1 if FEitτ is negative, and 0 otherwise.
The F-statistic is from an F-test is of the restriction that β4 = -β5.
The t-statistics and F-statistics are adjusted for cross-correlation in the residuals resulting from multiple appearances of the Rit
observations.
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