Journal of Accounting and Economics Vol. 21 No. 3 1996
How naive is the stock market's use of earnings information?
open access
Abstract
Rendleman, Jones, and Latané (1987) and Bernard and Thomas (1990) hypothesize and report evidence that investors use a ‘naive’ seasonal random walk model, at least in part, for quarterly earnings. We show that the market acts as if it: (1) does not use a simple seasonal random walk model; (2) does exploit serial correlation at lags 1–4 in seasonally-differenced quarterly earnings; (3) does use the correct signs in exploiting serial correlation at each lag; but (4) underestimates the magnitude of serial correlation by approximately 50% on average. We discuss the consistency of alternative hypotheses with our evidence.
- DOI
- 10.1016/0165-4101(96)00420-x
- Volume
- 21
- Issue
- 3
- Pages
- 319-337
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref