Abstract
Soffer and Lys (1999) investigate the fraction of predictable positive serial autocorrelation in seasonally differenced earnings reflected in stock prices and find no appreciation of serial correlation immediately after quarterly earnings announcements. Bathke, Lorek, and Willinger (2004) reexamine this result by separating firms with earnings that appear to follow a seasonal random walk (good-fit firms) from the remainder (bad-fit firms). They find that the Soffer and Lys result of zero autocorrelation implied by stock prices represents the combination of a negative implied autocorrelation for good-fit firms and a positive implied autocorrelation for bad-fit firms. This discussion considers different interpretations of that finding.
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