70.2K

Verified Solution

Link Copied!

Is the markets anticipation of the good news/bad news in earnings during 12 months prior to the month of the announcement of the earnings, as Ball and Brown found in their Figure 5.3., consistent with a correlation or a causation argument for the effect of accounting information on abnormal stock returns? Explain, with which argument is the market response during month 0 most consistent? Explain. (6 marks) Figure 5.3 Abnormal Returns for GN and BN Firms 1.12 1.10 1.08 1.06 1.04 GN 1.02 1.00 Abnormal Performance Index 0.98 Total sample 0.96 0.94 0.92 0.90 BN 0.88 -12 -10 8 -6 -4 -2. 0 +2 +4 +6 Month Relative to Annual Report Announcement Date Source: Ray Ball and P. Brown, "An Empirical Evaluation of Accounting Income Numbers," Journal of Accounting Research (Autumn 1968), p. 169. Reproduced with permission of John Wiley & Sons Ltd. Is the markets anticipation of the good news/bad news in earnings during 12 months prior to the month of the announcement of the earnings, as Ball and Brown found in their Figure 5.3., consistent with a correlation or a causation argument for the effect of accounting information on abnormal stock returns? Explain, with which argument is the market response during month 0 most consistent? Explain. (6 marks) Figure 5.3 Abnormal Returns for GN and BN Firms 1.12 1.10 1.08 1.06 1.04 GN 1.02 1.00 Abnormal Performance Index 0.98 Total sample 0.96 0.94 0.92 0.90 BN 0.88 -12 -10 8 -6 -4 -2. 0 +2 +4 +6 Month Relative to Annual Report Announcement Date Source: Ray Ball and P. Brown, "An Empirical Evaluation of Accounting Income Numbers," Journal of Accounting Research (Autumn 1968), p. 169. Reproduced with permission of John Wiley & Sons Ltd

Answer & Explanation Solved by verified expert

See Answer