Essay on Accounting Theory

In this research paper the authors want to express their thoughts by stating that how to them earnings reporting pertains to the discovery of information that has not been disclosed by either people or other types of sources and focus towards the negative in this study. In my opinion, the title of the paper itself could have had a different title only because throughout the paper it analyzes negative or bad news rather than really paying attention to both perspectives. Also the paper captures the information or news that occurs by using a three day window in which Quarterly Earnings Announcement (QEA) take place and compares it to a period where it does not take place. Furthermore, in this paper there are three hypotheses that arise

Since its foundation events study has paved the opportunity for scholars to investigate the impact of news and information releases relative to stock price in the markets. Its roots can be traced back as early as in 1930’s. According to a study by MacKinlay (1997) in his paper, cited an early paper was pioneered by Dooley (1933) who examined the stock price reaction to stock split announcements. In subsequent years, the significance of events study became an irresistible subject as it attracted the attention of John H. Myers and Archie Bakay (1948), C. Austin Baker (1956, 1957, 1958), and John Ashley (1962) who used events study methodology. A substantial number of studies have investigated the reaction of stock prices

After a profit announcement was made by David Jones Ltd, it is the objective of this report to note whether there was an impact of such information on investor behaviour via the share prices of this company. To ensure that the information found was accurate, the effect of the All Ordinaries was taken into consideration and comparisons were made between David Jones and its two main competitors. After analysing the closing share prices before and after the date of the announcement, it was found that share prices reduced more than that of the general stock market and also more than that of its main competitors. This report concludes that the announcement of accounting information by

This report will examine the impact of the Qantas profit announcement had on the share price. This will determine if the announcement had an impact or if it was market forces on investors with predetermined outcomes for their share price. The fluctuations seen in the Qantas share price over the three weeks before and three weeks after the announcement date of 28th of Augusts 2014 will be analysed within this

Under the idea that markets are efficient, stock prices reflect new information quickly and accurately. Furthermore, Morningstar (n.d.) contributes details on the strongest supportive theory of efficient markets, EMH exists in three forms: weak, semi-strong and strong. The hypothesis calls for the existence of informationally efficient markets, were current stock prices reflect all information, and attempts to outperform the market will only come in the form of riskier investments. Also, because of a large number of independent investors actively analyzing new information simultaneously as it enters the market, investors react accordingly and is immediately reflected in the stock

With this newfound skillset, I wanted to continue my research on the relationship between earnings surprises and stock returns. I found the perfect opportunity during a class on Alternative Investments taught by Dr. John Sedunov, where students were required to create and backtest a hedge fund strategy. I collaborated with two classmates and devised a strategy to buy and hold, on a quarterly basis, companies that experienced positive earnings revisions followed by positive earnings surprises. Earnings revision was measured in terms of dollar amount and majority analyst decision. For the analysis, we used analysts’ forecasts and earnings data from IBES database for all S&P 500 companies from 2011-2016. We found that the selected firms, on average, outperformed the S&P 500 index by 2.15% per quarter. While there is considerable literature on the effects of earnings surprises on stock prices, to my knowledge, the incorporation of earnings revision into this equation is limited. This is surprising given the apparent relationship between the two. Including earnings revision led to a 57% successful prediction of positive

Efficient Market Hypothesis has been controversial issues among researcher for decades. Until now, there is no united conclusion whether capital markets are efficiency or not. In 1960s, Fama (1970) believed that market is very efficient despite there are some trivial contradicted tests. Until recently, both empirical and theatrical efficient market hypothesis was being disputed by behavior finance economist. They have found that investor have psychological biases and found evidences that some stocks outperform other stocks. Moreover, there are evidences prove that market are not efficient for instance financial crisis, stock market bubble, and some investor can earn abnormal return which happening regularly in stock markets all over the world. Therefore, the purpose of this essay is to demonstrate that Efficient Market Hypothesis in stock (capital) markets does not exist in the real world by proofing four outstanding unrealistic conditions that make market efficient: information is widely available and cost-free, investor are rational, independent and unbiased, There is no liquidity problem in stock market, and finally stock prices has no pattern.

Following Fama’s (1970) landmark research papers, which explained the principals of the efficient market hypothesis, capital market efficiency has been a pre-eminent and ongoing research topic. Capital market research ‘explores the role of accounting and other financial information in equity markets.’The assumptions of market efficiency are central to capital market research. Market efficiency is considered important because if information is not assimilated into stock market rapidly of if new information appears in an anticipated manner, individuals may exploit this information.‘A market in which prices always fully reflect all available information is called efficient’ (Fama,1970:383). Markets are not

According the definition of EMH, the price which shown on the stock market already were the best results that shows the company’s operating ability. Therefore, it does not matter how much effort made by the stock firm and investor, and how cautious they are. Information already reacted in the stock prices, whether it is an expensive stock or a cheaper one. It seems that how much information could be reflected in price might the distinction of different form of market efficiency. Roberts (1967) had clearly defined the difference between the weak form, semi-strong form, and strong, and it further summarised by Fama (1970) to define the information efficiency, which is: “A market in which prices always ‘fully reflect’ available information is called ‘efficient’”. In the fact that several form market efficiency act in EMH indicates that does those forms real acts in the capital market should be analysed and proved.

Efficient Market Hypothesis (EMH) is a theory that states that it is impossible to beat the market due to the following reasons:

Richard Roll, and University and Auburn, University of Washington, and University of Chicago educated economist, began his career researching the effect of major events of stock prices. This experience likely helped him reach the two conclusions he makes in his 1977 “A Critique Of The Asset Pricing Theory’s Tests”, one of the earliest and most influential arguments against CAPM. In the paper, Roll makes two major claims: that CAPM is actually a redundant equation that just further proves the concept of mean-variance efficiency, and that it is impossible to conclusively prove CAPM. His first claim relates to mean-variance efficiency: the idea that mathematically one must be able to create a portfolio that offers the most return for a given amount of risk. Roll claims that all CAPM is doing is testing a portfolio’s mean variance efficiency, and not actually modeling out projected future returns. The second claim in the paper is that there is not enough data about market returns for CAPM to ever prove conclusive. Even if modern technologies could help alleviate some of the burden of testing market returns for publicly traded equities, there is still no way to account for the returns of less liquid markets, where there is less public information. This means it is impossible for

The popularly accepted theory of how the stock market works is the Efficient Market Hypothesis (EMH) which says that share prices always reflect the available information about the market and the companies in question (Shleifer 2000). The theory tests three assumptions:

In this study, we used the event study methodology to examine if cash dividend announcements affect the stock prices of companies listed on the Palestine Exchange. We studied 62 events announced from 1/1/2006 to 31/12/2015. Appropriate statistical tests were used to examine if the cumulative abnormal return is statistically significant around the announcement day, namely, 10 days before and 10 days after the event day. Results reveal that statistically significant differences exist between cumulative abnormal returns and zero. Thus, investors could realize abnormal returns during the event window for the study period. The findings also indicate that a statistically significant negative relationship exists between dividend

In this essay, we will look at the different forms of market efficiency; these include weak-form efficiency, semi-strong-form efficiency and strong-form efficiency. I will then discuss the anomalies of this theory and apply it to the efficient market hypothesis and look at the potential implications that this can have on the efficient market hypothesis (EMH). The EMH is a theory that stated it was impossible to beat the stock market; the reasoning behind it was that the stock market efficiency causes all existing share values to always include and reflect all relevant information. The theory states that all stocks trade at the fair value on all stock exchanges, therefore making it impossible for prospective investors to purchase stock which may be undervalued and then sell for an inflated price.

There have been many studies done on earnings per share and its effect on market share price, and they found that earnings per share are what determine the market price. The first study conducted by Faris Nasif AL- Shubiri shows that changes in stock price can be affected by macro and micro economic factors. Simple and multiple regression were used and he found that “there is a highly positive significant relationship between market price of stock and net asset value per share” (Hemadivya & Rama Devi). The second study by Dr. Sanjeet Sharma analyzed earnings per share and market price, and he found that “earning per share is a strong determinant of market price” (Hemadivya & Rama Devi). The third study by Malakar and Gupta analyzed the share prices of eight similar companies and took inconsiderate of dividend per share, earnings per share, retained earnings, and sales proceeds of each company, and found that “earnings per share is [a] significant determinant of share price” (Hemadivya & Rama Devi). The fourth study by Tuli, Nishi, and Mittal gathered 105 earnings ratios from 105 companies and used them in a cross sectional analysis. From the cross sectional analysis, they found that “earnings per share were significant in determining the share price” (Hemadivya & Rama Devi). In the fifth study by Malhotra, a study was done on four different industries, and the result showed that “earnings per share had positive and significant influence on market price of equity shares.