The Relation Between Security Returns, Firm Earnings and Industry Earnings

In this paper we examine the relation between a firm’s stock return and the earnings of other firms in the same industry, controlling for the firm’s own earnings. We document considerable cross-industry variation in the relation between a firm’s return and other firms’ earnings, and show that the sign of the relation depends on information provided prior to the industry earnings announcement period. We also provide evidence that a firm’s own earnings and other firms’ earnings are not substitutes (or complements) for one another-, rather, the response coefficient on a firm’s earnings is the same regardless of whether or not other firms’ earnings are already known._x000B__x000B_