Earnings Quality and Stock Returns

An exclusive focus on bottom-line income misses important information about the quality of earnings. Accruals (the difference between accounting earnings and cash flow) are reliably, negatively associated with future stock returns. Earnings increases that are accompanied by high accruals, suggesting low-quality earnings, are associated with poor future returns. We explore various hypotheses -- earnings manipulation, extrapolative biases about future growth, and under-reaction to business conditions -- to explain accruals' predictive power. Distinctions between the hypotheses are based on evidence from operating performance, the behavior of individual accrual items, and discretionary versus nondiscretionary components of accruals.

Analysts' Conflict of Interest and Biases in Earnings Forecasts

Analysts' earnings forecasts are influenced by their desire to win investment banking clients. We hypothesize that the equity bull market of the 1990s, along with the boom in investment banking business, exacerbated analysts' conflict of interest and their incentives to adjust strategically forecasts to avoid earnings disappointments. We document shifts in the distribution of earnings surprises, the market's response to surprises and forecast revisions, and in the predictability of non-negative surprises. Further confirmation is based on subsamples where conflicts of interest are more pronounced, including growth stocks and stocks with consecutive non-negative surprises; however shifts are less notable in international markets.

The 2D analogue of the Reissner-Nordstrom solution

A two-dimensional (2D) dilaton gravity model, whose static solutions have the same features of the Reissner-Nordstrom solutions, is obtained from the dimensional reduction of a four-dimensional (4D) string effective action invariant under S-duality transformations. The black hole solutions of the 2D model and their relationship with those of the 4D theory are discussed.Comment: 5 pages, Plain-Tex, no figure

A Cross-Market Comparison of Institutional Equity Trading Costs

We compare execution costs (market impact plus commission) on the New York Stock Exchange (NYSE) and on Nasdaq for institutional investors. The differences in cost generally conform to each market's area of specialization. Controlling for firm size, trade size and the money management firm's identity, costs are lower on Nasdaq for trades in comparatively smaller firms. For the smallest firms, the cost advantage under a pre-execution benchmark is 0.68 percent. However, trading costs for the larger stocks are lower on NYSE. For the largest stocks, costs are lower by 0.48 percent on NYSE. Given the extreme difficulty of controlling for variables other than market structure, however, comparisons of costs should be interpreted with extreme caution.

Fundamentals and stock returns in Japan

This paper relates cross-sectional differences in returns on Japanese stocks to the underlying behavior of four fundamental variables: earnings yield, size, book to market ratio, and cash flow yield. Alternative statistical specifications and various estimation methods are applied to a comprehensive, high-quality data set that extends from 1971 to 1988. The sample includes both manufacturing and non-manufacturing firms, companies from both sections of the Tokyo Stock Exchange, and also delisted securities. Our findings reveal a significant relationship between fundamental variables and expected returns in the Japanese market. Of the four fundamental variables considered, the book to market ratio and cash flow yield have the most significant positive impact on expected returns

The Risk and Return from Factors

The ability to identify which factors best capture systematic return covariation is central to applications of multifactor pricing models. This paper uses a common data set to evaluate the performance of various proposed factors in capturing return comovements. Factors associated with the market, size, past return, book-to-market and dividend yield help explain return comovement on an out-of-sample basis (although they are not necessarily associated with large premiums in average returns). Except for the default premium and the term premium, macroeconomic factors perform poorly. We document regularities in the behavior of the more important factors, and confirm their influence in the Japanese and U.K. markets as well.

A Solvable Model of Two-Dimensional Dilaton-Gravity Coupled to a Massless Scalar Field

We present a solvable model of two-dimensional dilaton-gravity coupled to a massless scalar field. We locally integrate the field equations and briefly discuss the properties of the solutions. For a particular choice of the coupling between the dilaton and the scalar field the model can be interpreted as the two-dimensional effective theory of 2+1 cylindrical gravity minimally coupled to a massless scalar field.Comment: 6 pages, RevTeX, to be published in Phys. Rev.

Modifications of the BTZ black hole by a dilaton/scalar

We investigate some modifications of the static BTZ black hole solution due to a chosen asymptotically constant dilaton/scalar. New classes of static black hole solutions are obtained. One of the solutions contains the Martinez-Zanelli conformal black hole solution as a special case. Using quasilocal formalism, we calculate their mass for a finite spatial region that contains the black hole. Their temperatures are also computed. Finally, using some of the curvature singularities as examples, we investigate whether a quantum particle behaves singularly or not.Comment: 18 pages, Latex, in press in Phys. Rev.

Trace anomaly and Hawking effect in generic 2D dilaton gravity theories

Black hole solutions in the context of a generic matter-coupled two-dimensional dilaton gravity theory are discussed both at the classical and semiclassical level. Starting from general assumptions, a criterion for the existence of black holes is given. The relationship between conformal anomaly and Hawking radiation is extended to a broad class of two-dimensional dilaton gravity models. A general and simple formula relating the magnitude of the Hawking effect to the dilaton potential evaluated on the horizon is derived.Comment: 14 pages, Plain-Tex, 4 figures in a uuencoded-gzipcompressed ps fil