A perspective on accounting and stock prices.

Abstract The article presents an overview of accounting and stock prices. These two types of study, which are actually market reaction and valuation studies, are not entirely distinct. In so far as it is concerned with price effects, the former type generally focuses on the relation between new accounting information and short-term changes in stock prices. Valuation studies, on the other hand, are ostensibly concerned with the relation between the level of stock prices and accounting variables, generally earnings but in order to mitigate problems arising from omitted variables, valuation studies frequently use first differences and also consider the relation between changes in stock prices and changes in earnings. However, the distinction between the two types of study may be maintained by observing that market reaction studies generally analyze security returns over much shorter time interval.