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Isidro, H. & Dias, J. G. (2017). Earnings quality and the heterogeneous relation between earnings and stock returns. Review of Quantitative Finance and Accounting. 49 (4), 1143-1165

H. O. Isidro and J. M. Dias,  "Earnings quality and the heterogeneous relation between earnings and stock returns", in Review of Quantitative Finance and Accounting, vol. 49, no. 4, pp. 1143-1165, 2017

@article{isidro2017_1714063989848,
	author = "Isidro, H. and Dias, J. G.",
	title = "Earnings quality and the heterogeneous relation between earnings and stock returns",
	journal = "Review of Quantitative Finance and Accounting",
	year = "2017",
	volume = "49",
	number = "4",
	doi = "10.1007/s11156-017-0619-z",
	pages = "1143-1165",
	url = "https://link.springer.com/article/10.1007%2Fs11156-017-0619-z"
}

TY  - JOUR
TI  - Earnings quality and the heterogeneous relation between earnings and stock returns
T2  - Review of Quantitative Finance and Accounting
VL  - 49
IS  - 4
AU  - Isidro, H.
AU  - Dias, J. G.
PY  - 2017
SP  - 1143-1165
SN  - 0924-865X
DO  - 10.1007/s11156-017-0619-z
UR  - https://link.springer.com/article/10.1007%2Fs11156-017-0619-z
AB  - We adopt a heterogeneous regime switching method to examine the informativeness
of accounting earnings for stock returns. We identify two distinct time-series
regimes in terms of the relation between earnings and returns. In the low volatility regime
(typical of bull markets), earnings are moderately informative for stock returns. But in high
volatility market conditions (typical of financial crisis), earnings are strongly related to
returns. Our evidence suggests that earnings are more informative to investors when
uncertainty and risk is high which is consistent with the idea that during market downturns
investors rely more on fundamental information about the firm. Next, we identify groups of
firms that follow similar regime dynamics. We find that the importance of accounting
earnings for returns in each of the market regimes varies across firms: certain firms spend
more time in a regime where their earnings are highly relevant to returns, and other firms
spend more time in a regime where earnings are moderately relevant to returns. We also
show that firms with poorer accrual quality have a greater probability of belonging to the
high volatility regime.
ER  -