The Effect of Earnings Yields Upon the Association Between Unexpected Earnings and Security Returns: A Re-examination.

Abstract ABSTRACT: This paper re-examines Basu's 1978 finding that earnings yields are related to the unexpected earnings-security returns association in a manner consistent with biased Investor expectations of earnings. The results indicate that those early findings were clue to 11) a classification bras inherent in the market index earnings expectation model used, and (2) failure of the returns conditioning model to incorporate a share price effect on security returns. Both factors in the research design have implications for contemporary studies of the unexpected earnings-security returns association.