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Firm Valuation, Earnings Expectations, and the Exchange‐Rate Exposure Effect
Author(s) -
BARTOV ELI,
BODNAR GORDON M.
Publication year - 1994
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1994.tb04780.x
Subject(s) - earnings , liberian dollar , valuation (finance) , economics , econometrics , sample (material) , monetary economics , financial economics , earnings response coefficient , accounting , finance , chemistry , chromatography
Consistent with previous research, we fail to find a significant correlation between the abnormal returns of our sample firms with international activities and changes in the dollar. We investigate the possibility that this failure is due to mispricing. Lagged changes in the dollar are a significant variable in explaining current abnormal returns of our sample firms, suggesting that mispricing does occur. A simple trading strategy based upon these results generates significant abnormal returns. Corroborating evidence from returns around earnings announcements as well as errors in analysts' forecasts of earnings is also provided.