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Earning and stock returns

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Earnings announcements by companies are closely followed by, and frequently result in, share price revisions. Two issues should come to mind. First, earnings announcements concern past periods, If the market values stocks based on expectations of the future, why are numbers summarizing past performance relevant? Second, these announcements concern accounting earnings. Going to chapter 2 in the Ross text, such earnings may have little to do with cash flow - so, again, why are they relevant?

Reference no: EM1363001

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