The realized size and value premia reflect earnings-induced price surprises that do not fit the rational pricing story. In addition, they seem to have little to do with systematic risks. This is because the majority of value or small firms with persistently high systematic risks are not rewarded with a premium. The premium happens, as a price adjustment, only to the subset of migrating firms wh...

Empirical studies have suggested that stock returns can be predicted by financial variables such as the dividend-price ratio. However, these studies typically ignore the high persistence of predictor variables, which can make first-order asymptotics a poor approximation in finite samples. Using a more accurate asymptotic approximation, we propose two methods to deal with the persistence problem...

This paper uses data from the Current Population Survey to analyze determinants of cigarette demand. Price elasticities for smoking participation and quantity of cigarettes smoked are between y0.4 and y0.6 for both men and women. These effects diminish for high-income individuals. The family earnings elasticity of demand is weak, but education has strong negative effects on smoking, especially ...

This paper examines the effect of inflation on stock valuations and expected long-run returns. Ex ante estimates of expected long-run returns are constructed by incorporating analysts’ earnings forecasts into a variant of the Campbell-Shiller dividend-price ratio model. The negative relation between equity valuations and expected inflation is found to be the result of two effects: a rise in exp...

The widely used linear model of the unexpected earnings/returns relationship has been challenged. In this article we propose a flexible nonparametric approach to study this relationship in which splines are used to approximate the unknown regression function. Spline confidence bands are constructed based on wild bootstrap to examine the adequacy of certain linear/nonlinear specifications. Monte...

Although trends in many physical characteristics and cognitive capabilities of modern humans are well-documented, less is known about how personality traits have evolved over time. We analyze data from a standardized personality test administered to 79% of Finnish men born between 1962 and 1976 (n = 419,523) and find steady increases in personality traits that predict higher income in later lif...

We examine the stock price reaction to announcements that firms are alleged to be doing fraudulent financial reporting or manipulating earnings, using a sample of firms cited by the Securities Exchange Commission (SEC) in its Accounting and Auditing Enforcement Releases (AAERs) during the time period 1985-2005. We find a total 14% drop in stock price over a three day window surrounding the anno...

Based on valuation model of residual earnings, we cannot use earnings and losses of balance sheet items recorded in fair value for valuation purposes, for the balance sheet provides a perfect estimate of such items’ value. The purpose of this study is to examine whether net financial expenses are related to the market price of stocks in Iran, because after initial recording of financial debts, ...

Life-cycle earnings profiles are becoming flatter. The earnings growth over the life cycle for workers in the 1980 cohort was substantially less than the earnings growth for workers in the 1940 cohort (Table 1). We divide a worker’s life cycle into two periods: ages 20 to 39 and ages 40 to 59. We refer to workers aged 20-39 in year t as cohort t. We compute life-cycle earnings growth as the rat...