Earnings Decomposition and Market Efficiency

Using the earnings decomposition model in Jackson, Plumlee and Rountree (2018), we investigate investors’ incorporation of the market, industry and firm-idiosyncratic components of earnings in their stock pricing decisions. We find results consistent with Jackson et al. (2018), showing the firm-idiosyncratic component of earnings is less persistent than the other two earnings components. However, we find that investors fail to correctly react to the actual persistence of the market and firm-idiosyncratic components of earnings as reflected in their stock pricing behavior. Investors are found to underweight the market and firm-idiosyncratic components of earnings but correctly weight the industry component of earnings. Correspondingly, we find that significant positive abnormal returns can be earned by taking a long (short) position in firms with higher (lower) levels of firm-idiosyncratic earnings consistent with the firm-idiosyncratic earnings component containing higher information uncertainty.

Associate Professor Andrew Jackson

Andrew joined UNSW's Business School in July 2005 and was appointed Senior Lecturer in July 2011. Andrew teaches postgraduate financial accounting. Prior to his appointment at UNSW, Andrew taught at Victoria University of Wellington in New Zealand.

His research interest examines how accounting information is used by capital market participants, including issues on earnings co-movements, corporate disclosure, stock return volatility, the timeliness of earnings and asset pricing models. His paper, 'Pierpont and the Capital Market' was awarded a joint share of the Abacus 2009 Manuscript Award.

Andrew is a director of the Accounting and Finance Association of Australia and New Zealand (AFAANZ) and is the Undergraduate Honours coordinator in the School of Accounting.​

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