Good News for Value Stocks: Further Evidence on Market Efficiency
NBER Working Paper No. 5311
This paper examines the hypothesis that the superior return to so-called value stocks is the result of expectational errors made by investors. We study stock price reactions around earnings announcements for value and glamour stocks over a 5 year period after portfolio formation. The announcement returns suggest that a significant portion of the return difference between value and glamour stocks is attributable to earnings surprises that are systematically more positive for value stocks. The evidence is inconsistent with a risk-based explanation for the return differential.
Published: Journal of Finance, Vol. 52, no. 2 (June 1997): 859-873.