The Power of Firm Fundamentals in Explaining Stock Returns-会计系|光华管理学院


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The Power of Firm Fundamentals in Explaining Stock Returns


Accounting Seminar2017-12


Topic:The Power of Firm Fundamentals in Explaining Stock Returns

Speaker:Frank Zhang,Yale University

Time:Wednesday, November 22th, 10:00-11:30 a.m

Place:Room 217, Guanghua Building 2



Prior literature shows that earnings have come to explain less stock price movement over time, suggesting that firm fundamentals have become less important. In this paper, we replace earning with earnings announcement returns as a measure of fundamental news and find that earnings news has come to explain more price movement over time. In the years after 2004, earnings announcement returns explain roughly 20% of the annual return—twice as much as they did before, indicating that firm fundamentals have become more important, not less. This pattern occurs for other forms of fundamental news. Collectively, the returns around earnings announcements, analyst forecast revisions, analyst recommendations, and 8-K filings went from explaining 15% of annual returns in the 1990s to 35% in the 2010s. In exploring possible explanations for the increase in the explanatory power of fundamental news, we find evidence consistent with regulatory changes, such as Sarbanes-Oxley, driving our results. In contrast, neither pre-announcement information leaks, sample composition changes, nor concurrent information events (e.g., management forecasts) explain the increase in explanatory power.


Frank Zhang is a professor at Yale University. His research focuses on empirical capital market researches, including stock anomalies, fundamental analysis, investor and analyst behavior, management incentives, and corporate financial reporting. He has published about 20 papers in leading accounting and finance journals, such as The Accounting Review, Journal of Accounting Research, Review of Accounting Studies, Journal of Finance, and Review of Financial Studies. He is currently a member of the FARS Steering Boad and an Associate Editor of Management Science. He has a PhD from the University of Chicago.

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