Aharon R. Ofer, Investors' Expectations of Earnings Growth, Their Accuracy and Effects on the Structure of Realized Rates of Return, The Journal of Finance, Vol. 30, No. 2, Papers and Proceedings of the Thirty-Third Annual Meeting of the American Finance Association, San Francisco, California, December 28-30, 1974 (May, 1975), pp. 509-523

This paper tests an information-signaling hypothesis as a potential explanation for corporate convertible bond call policies and for the negative share price reaction to the announcement of the calls. We test this hypothesis by trying to ascertain whether the information signaled is realized. Our results show an unexpected decline in the firm's performance subsequent to the call. We also find significant negative cumulative returns during a sixty-month period following the calls.

The article presents information on content of general price level earnings. The criticism of the use of a binomial test in which the author compare the number of cases in which the General Price Level (GPL) correlation coefficients exceed the historical cost (HC) coefficients, are correct. The problem with the test is that the observations are not independent. The results clearly indicate that, in the tests that we conducted, GPL earnings outperfouued HC earnings. The authors present results for the difference between GPL correlations and HC correlations. Based on the results in this table, the conclusions of this paper are criticized. The test is performed for three earnings ratios-net income to common equity, net income to market value of common equity and net income plus depreciation to market value of common equity. In addition, the test is performed for three portfolio sizes-individual securities, portfolios of five securities and portfolios often securities. The results for two out of the three earnings definitions, reveal that GPL earnings outperform HC earnings at the five percent significance level.

The incorporation of diverse information into asset prices is empirically examined in an actual securities market with multiple rounds of trade. Using prices of Israeli index and nominal bonds of equal maturity, we calculate implied expectations of inflation that has already occurred but for which the official statistic has not yet been announced. Learning is defined as the convergence of these expectations to the actual level of inflation in the period after the end of the month but before the announcement of the official statistic. We find that the variance of the inflation expectation errors decreases with trading days in this period. The decline in the variance suggests that investors learn, by repeatedly observing prices, about the distribution of other investors' information. We also find a positive relation between the dispersion of relative price changes and the size of the inflation‐expectation errors on the first round of trade. The correlation diminishes as investors learn about the distribution of inflation information in the economy.

The incorporation of diverse information into asset prices is empirically examined in an actual securities market with multiple rounds of trade. Using prices of Israeli index and nominal bonds of equal maturity, we calculate implied expectations of inflation that has already occurred but for which the official statistic has not yet been announced. Learning is defined as the convergence of these expectations to the actual level of inflation in the period after the end of the month but before the announcement of the official statistic. We find that the variance of the inflation expectation errors decreases with trading days in this period. The decline in the variance suggests that investors learn, by repeatedly observing prices, about the distribution of other investors' information. We also find a positive relation between the dispersion of relative price changes and the size of the inflation‐expectation errors on the first round of trade. The correlation diminishes as investors learn about the distribution of inflation information in the economy.

[The incorporation of diverse information into asset prices is empirically examined in an actual securities market with multiple rounds of trade. Using prices of Israeli index and nominal bonds of equal maturity, we calculate implied expectations of inflation that has already occurred but for which the official statistic has not yet been announced. Learning is defined as the convergence of these expectations to the actual level of inflation in the period after the end of the month but before the announcement of the official statistic. We find that the variance of the inflation expectation errors decreases with trading days in this period. The decline in the variance suggests that investors learn, by repeatedly observing prices, about the distribution of other investors' information. We also find a positive relation between the dispersion of relative price changes and the size of the inflation-expectation errors on the first round of trade. The correlation diminishes as investors learn about the distribution of inflation information in the economy.]