The Impact Of Accounting Earnings On Malaysian Stock Prices Some Empirical Evidence
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Date
2000-05
Authors
Sian Hin, Au
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Abstract
This study investigates the association between the magnitude of unexpected earnings
changes and the abnormal stock returns, based on empirical evidence from the
Malaysian stock market.
Appropriate adjustments to mitigate possible effects of thin trading bias are carried
out using Scholes-Williams three period leads / lags model. Grouping technique
based on abnormal returns is used to diversify away the transitory component of
accounting earnings, thereby altering the relationship between the magnitude of
unexpected earnings and abnormal returns.
The overall results show positive rank correlation between the magnitude of
unexpected earnings changes and abnormal returns. The isolation of permanent
component in earnings changes yields mixed results whereby the strength of
association between the magnitude of unexpected earnings changes and abnormal
returns improves when portfolios are formed by pooling the data ov~r the whole test.
window. However no significant improvement on the strength of the ·association by
the isolation of permanent earnings changes is observed when portfolios are formed
on yearly basis.
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Keywords
Accounting Earnings , Malaysian Stock Prices