Company Surplus Stock Returns

With the development of capital market, more and more attention has been paid on the relationship between earnings and stock price. In this paper, with the quarterly data of Chinese A-share listed companies during the period from January 2001 to June 2011 as the sample, considering both the previous earnings and the current earnings, the impact of firm-level earnings and aggregate earnings on stock returns are respectively analyzed.The empirical results show that both the previous earnings and the current earnings are significantly related with stock returns. But the impact of firm-level earnings and aggregate earnings on stock returns are different. The previous and the current firm-level earnings both have significantly positive relation with stock returns. In contrast to firm-level findings, aggregate earnings, either the previous earnings or the current earnings, have significantly negative relation with stock returns.Aggregate earnings have significantly negative relation with stock returns. In order to study the operating mechanism of this impact, some macroeconomic variables are chosen as the common variables. By using the structural equation model, the impact of macroeconomic variables on aggregate earnings and the impact of macroeconomic variables on aggregate stock returns are both analyzed. The result shows that macro-economic variables are positively related with aggregate earnings. Oppositely, the relation between macro-economic variables and stock returns is negative. The result verifies such an interpretation that there are some of the same variables, which simultaneously have impact on aggregate earnings and stock returns, but the two kinds of impact are in the opposite direction, and this is the reason why aggregate earnings are significantly negative related to stock returns.