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- Earnings_response_coefficient abstract "In financial economics and accounting, the earnings response coefficient, or ERC, is the estimated relationship between equity returns and the unexpected portion of (i.e., new information in) companies' earnings announcements. Arbitrage pricing theory describes the theoretical relationship between information that is known to market participants about a particular equity (e.g., a common stock share of a particular company) and the price of that equity. Under the efficient market hypothesis, equity prices are expected in the aggregate to reflect all relevant information at a given time. Market participants with superior information are expected to exploit that information until share prices have effectively impounded the information. Therefore, in the aggregate, a portion of changes in a company's share price is expected to result from changes in the relevant information available to the market. The ERC is an estimate of the change in a company's stock price due to the information provided in a company's earnings announcement.The ERC is expressed mathematically as follows: UR = the unexpected returna = benchmark rateb = earning response coefficient(ern-u) = (actual earnings less expected earnings) = unexpected earnings e = random movementGood News (GN) firms enjoyed positive abnormal returns, and negative for their Bad News (BN) firms. This raises the question of why the market might respond more strongly to the good or bad news in earnings for some firms than for others. If the answer can be found, accountants can improve their understanding of how accounting information is useful to investors. This, in turn, could lead to the preparation of more useful financial statements. Consequently, one of the most important directions that empirical financial accounting research took since the BB study (Ball and Brown (1968)) is the identification and explanation of differential market response to earnings information. This is called earnings response coefficient (ERC). "Earnings response coefficient measures the extent of security’s abnormal market return in response to the unexpected component of reported earnings."".
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- Earnings_response_coefficient wikiPageRevisionID "591286260".
- Earnings_response_coefficient hasPhotoCollection Earnings_response_coefficient.
- Earnings_response_coefficient subject Category:Accounting_research.
- Earnings_response_coefficient subject Category:Finance_theories.
- Earnings_response_coefficient subject Category:Financial_markets.
- Earnings_response_coefficient subject Category:Mathematical_finance.
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- Earnings_response_coefficient type Explanation105793000.
- Earnings_response_coefficient type FinanceTheories.
- Earnings_response_coefficient type FinancialMarkets.
- Earnings_response_coefficient type HigherCognitiveProcess105770664.
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- Earnings_response_coefficient type Process105701363.
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- Earnings_response_coefficient comment "In financial economics and accounting, the earnings response coefficient, or ERC, is the estimated relationship between equity returns and the unexpected portion of (i.e., new information in) companies' earnings announcements. Arbitrage pricing theory describes the theoretical relationship between information that is known to market participants about a particular equity (e.g., a common stock share of a particular company) and the price of that equity.".
- Earnings_response_coefficient label "Earnings response coefficient".
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- Earnings_response_coefficient sameAs Q5326946.
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- Earnings_response_coefficient wasDerivedFrom Earnings_response_coefficient?oldid=591286260.
- Earnings_response_coefficient isPrimaryTopicOf Earnings_response_coefficient.