Aggregate Earnings and Market Returns: International Evidence

39 Pages Posted: 26 Aug 2011 Last revised: 22 Jan 2016

See all articles by Wen He

Wen He

University of Queensland - Business School

Maggie Hu

The Chinese University of Hong Kong

Date Written: December 18, 2012


Kothari, Lewellen and Warner (2006) document that in the U.S. market aggregate earnings changes are negatively related to contemporaneous market returns. This is puzzling given the well-documented evidence that firm-level earnings changes are positively related to stock returns. In this study we use a sample of 28 countries to provide international evidence on this important issue. In pooled cross-country and time-series regressions, we find that aggregate earnings changes are positively associated with contemporaneous market returns. When we run time-series regressions of market returns on aggregate earnings changes for each country, we find only four countries have negative coefficients for aggregate earnings changes and none of these negative coefficients are statistically significant. This evidence contrasts the U.S. evidence. Furthermore aggregate earnings exhibits substantial persistence, suggesting current earnings convey information about future earnings. Finally we find that the earnings-returns relation at aggregate becomes less positive in countries with more transparent accounting disclosure. This result supports the argument proposed by Sadka and Sadka (2009) that predictability of aggregate earnings leads to the negative relation between aggregate earnings and market returns in the U.S..

Keywords: stock prices, market returns, aggregate earnings, international markets, accounting disclosure

JEL Classification: E31, G12, G14, G15, M41

Suggested Citation

He, Wen and Hu, Maggie, Aggregate Earnings and Market Returns: International Evidence (December 18, 2012). Journal of Financial and Quantitative Analysis (JFQA), 2014, Volume 49, Issue 04, pages 879-901, Available at SSRN: or

Wen He (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072

Maggie Hu

The Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong


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