Articlebronze1997

Good News for Value Stocks: Further Evidence on Market Efficiency

Josef Lakonishok · Andrei Shleifer · Robert W. Vishny

805 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Financial Analysis and Corporate Governance Financial Reporting and Valuation Research

Abstract

ABSTRACT This article 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.

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References

1992The Cross-Section of Expected Stock Returns 1973Risk, Return, and Equilibrium: Empirical Tests 1985Does the Stock Market Overreact?1973An Intertemporal Capital Asset Pricing Model 1994Contrarian Investment, Extrapolation, and Risk 1977INVESTMENT PERFORMANCE OF COMMON STOCKS IN RELATION TO THEIR PRICE‐EARNINGS RATIOS: A TEST OF THE EFFICIENT MARKET HYPOTHESIS 1987Further Evidence On Investor Overreaction and Stock Market Seasonality 1985Persuasive evidence of market inefficiency

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