We are indebted to Elisabeth Allison, G. L. Bach, William Becker, Frank Bonello, Kenneth Boulding, Stephen Buckles, J R. Clark, George Dawson, Daniel Fusfeld, Malcolm Getz, W Lee Hansen, RobertHeilbroner, RobertHighsmith, CliffHuang, ThomasJohnson, Allen Kelley, Darrell Lewis, Michael MacDowell, Campbell McConnell, Richard McKenzie, David Morawetz, Donald Paden, Phillip Saunders, Alex Scott, Howard Tuckman, John Vahaly, Henry Villard, Burton Weisbrod, Arthur Welsh, and Thomas Zak for comments on an earlier draft; to Thomas Overstreet and James Lewek for research assistance; to the members of Economics 380, Kaye James, Noel Lim, Katherine Maddox, Hal McClure, Mary Ann Meiners, and George Nomikos, for papers and discussions on economics education; to Violet Sikes for typing; and to Marjorie Churchill for editorial assistance.

Accounting techniques, Earnings, Firm performance, Systematic properties of accounting numbers

In addition to the recent interest of the Securities and Exchange Commission, executive forecasts of earnings have received a considerable amount of attention in the academic literature (Basi, Carey, and Twark [1976], Lorek, McDonald, and Patz [1976], McDonald [1973], Copeland and Marioni [1972], Kapnick [1972], Daily [1971]). Much of this attention has focused either on the absolute or relative accuracy of such forecasts or on the ethical, legal, and practical problems of publishing and reviewing executive forecasts of earnings in external accounting reports. One aspect that has not been adequately considered is investor reaction to executive long-range forecasts of earnings. The purpose of this study is to investigate the information content of voluntarily disclosed long-range earnings forecasts by executives by determining security return reactions to a sample of such forecasts that were reported in the Wall Street Journal. The inclusion of management estimates of future earnings in annual reports is advocated on the assumption that such forecasts contain information, of interest to investors or other persons outside the firm, not otherwise publicly available. Not only do executives have information about internal and external factors expected to affect future operations and earnings, but they also exert considerable effort evaluating these factors and their impact on prospective operations in the normal planning function. Consequently, executive forecasts of earnings might be of inter-

Stanley J. Garstka, Philip A. Ohlson, Ratio Estimation in Accounting Populations with Probabilities of Sample Selection Proportional to Size of Book Values, Journal of Accounting Research, Vol. 17, No. 1 (Spring, 1979), pp. 23-59

Information systems, Human Information Processing, Performance peaks, Differential performance peaking

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The existence of seasonality in security rates of return has implications for both the study of market efficiency and tests involving return models. The existence of seasonal asset returns may be an indicator of market inefficiencies. In an efficient market, investor arbitrage should remove any excess seasonal return an asset receives over a comparable asset of equal risk. The presence of seasonal returns, however, does not necessitate market inefficiency. For example, an expected seasonal return may exist in an efficient market simply because of anticipated seasonal patterns embedded in its underlying determinants. Tax regulations, government monetary policy, seasonal information lags, or risk adjustments have all been advanced as determinants of seasonal movements in return. No matter what the basis for return seasonality or the extent of market efficiency, if seasonality in asset returns exists, then these returns do not follow a strict stationary process within the year. Statistical models analyzing asset returns may use this information to improve model specification. For instance, Kinney and Rozeff [16] have shown that large efficiency gains in estimating portfolio betas can be achieved using time stratified estimates which explicitly incorporate seasonality in 4 stock returns.