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Academic Research of Bernard and Thomas (1990)

In:

Submitted By melym89
Words 573
Pages 3
To: Professor SIyi Li Ph.D. CFA
From: Daniela Dinu
Date: [ 9/12/2012 ]
Re: Academic Research of Bernard and Thomas (1990)
Authors Bernard and Thomas wrote an article titled “Evidence that Stock Prices Do Not Fully Reflect the Implications of Current Earning for Future Earnings.” We will look at the main questions explored, main findings, and consider the conclusion. Finally, we will discuss some implications of this paper causes for practitioners.
The main research question in the paper is weather stock prices reflect implications of current earnings for future earnings. This means that information weather positive or negative is not immediately absorbed and shown by the market. This is a very important question because we are expecting the market to fluctuate and absorb new information or announcements immediately. This actually shows that there isn’t much activity on the day of the announcement rather in a later quarter.
In finance, the efficient-market hypothesis (EMH) asserts that financial markets are "information efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made. (Wikipedia 2012) The findings in the paper are inconsistent with the definition because what the authors are trying to shows us is that the market doesn’t reflect this information right away but it does allow us to predict the next four quarters. We see there are two main finding throughout the article and that is there is a “positive relation between unexpected earnings for quarter t and post announcement drift for quarter t +1, we find s negative relation between unexpected earnings for quarter t and the abnormal returns around the announcement of earnings for quarter t +4” and “signs and magnitudes of the three-day reactions are

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