Earnings Surprises, Growth Expectations, and Stock Returns:

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Table 7 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 measured using MB quintiles (low MB = quintile 0, high MB = quintile 4), PE quintiles (low PE = quintile 0, high PE = quintile 4), and LTG quintiles (low LTG = quintile 0, high LTG = 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, providing a sample of 1,386,813 observations. 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. 57
Growth Measure MB .0065 (5.36) MB .0158 (3.81) PE .0051 (4.45) PE .0137 (3.77) LTG .0071 (5.64) LTG .0082 (2.00) Table 7 (Continued) Intercept Growth Good Bad Good* Growth -.0032 (-6.57) 0.0002 (0.15) -.0026 (-5.46) .0008 (0.61) -.0033 (-6.38) .0031 (2.04) .0347 (7.70) .0338 (8.42) .0246 (5.48) -.0481 (-10.78) -.0466 (-11.76) -.0262 (-5.89) .0022 (1.33) .0025 (1.63) .0086 (5.10) Bad* Growth -.0095 (-5.95) -.0093 (-6.19) -.0190 (-11.40) Adjusted F-statistic (p-value) 5.79 (.0160) 5.61 (.0179) 10.59 (.0011) Adjusted R-squared 0.06% 7.57% 0.04% 7.83% 0.07% 8.61% 58
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Earnings Surprises, Growth Expectat
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Our paper also resolves the inconcl
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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 and 42: Figure 3 Illustration of the altern
Page 43 and 44: Abnormal Return 0.2 0.15 0.1 0.05 0
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: Return Measurement Interval Fullret
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