Aggregate Earnings, Stock Market Returns and Macroeconomic Activity

Download or read book Aggregate Earnings, Stock Market Returns and Macroeconomic Activity written by Lakshmanan Shivakumar and published by . This book was released on 2007 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: Anilowski, Feng and Skinner (Journal of Accounting and Economics, 2006, this issue) examine the relationship between aggregate earnings guidance, aggregate earnings news and market returns. They provide evidence that changes in aggregate proportions of downward or upward earnings guidance are associated with aggregate earnings news and weakly associated with market returns. However, the study is unable to establish causality or the precise nature of the relationship between aggregate earnings guidance and market returns. To better understand the relationship, this paper analyses the relation between aggregate earnings, stock market returns and the macroeconomy. I empirically document that aggregate earnings primarily contain information about future inflation. This inflation information in aggregate earnings causes aggregate earnings to be negatively correlated with stock returns. The paper concludes with suggestions for future research.