Business Cycles and the Relation between Security Returns and Earnings

Posted: 14 Nov 1999

See all articles by Marilyn F. Johnson

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems

Abstract

This paper examines business cycle variation in the earnings-returns relation. Earnings are more persistent when growth rates are high (i.e., in an expansion) than when growth rates are low (i.e., in a recession). Earnings are more persistent when production is high (i.e., in a credit crunch period) than when production is low (i.e., in a reliquification period). Relatedly, earnings response coefficients are larger in expansions (credit crunch periods) than in recessions (reliquification periods). Thus, earnings persistence and earnings response coefficients are positively associated with the rate of growth in economic activity and the level of economic activity.

JEL Classification: M41, G12

Suggested Citation

Johnson, Marilyn F., Business Cycles and the Relation between Security Returns and Earnings. Available at SSRN: https://ssrn.com/abstract=186108

Marilyn F. Johnson (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-0152 (Phone)
517-432-1101 (Fax)

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