earnings response coefficient

Definition

The relationship between a firm's equity returns and any unexpected earnings announcements. A firm's stock price is related to information available to investors. Thus, news of unexpected earnings can lead to buying panic while low earnings can lead to selling panic. The earnings response coefficient is expressed as R = a + b(em-u) + e where r is the expected return, (em-u) is the value of unexpected earnings, e is the random movement, a is the benchmark rate and b is the earnings response coefficient.
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earnings report earnings season