Question
Ball and Brown's research examined the association between stock returns and earnings when the period (or window) over which earnings and stock returns are measured
Ball and Brown's research examined the association between stock returns and earnings when the period (or window) over which earnings and stock returns are measured is one year. In later periods, researchers examined the association between stock returns and earnings when the period (or window) over which earnings and stock returns are measured is greater than one year.
Part A
Discuss how the strength of the association between earnings and stock returns changes as the window increases from one year to greater than one year. (6 marks)
Part B
Identify and explainfourreasons why share prices of different firms might react differently to earnings announcements even when these firms report the same amount of unexpected earnings. (8 marks).
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