Earnings and Stock Returns Models: Evidence from Jordan

Abstract

Customary accounting performance measures, like that of ROA, ROE and EPS is all frequently being used as the foundation when it comes to appraising a company’s operating performance. It is the foundation of managerial compensations when it comes to bonus plans. All empirical research studies have shown that accounting based performance measures have a positive association when it comes to stock returns and it clarifies the important proportions of variations of stock returns.

(67) Companies represent the study sample for the period 2004-2011, the number of observations is (460) company-years measures.

The main findings indicate that the three models show that earnings and stock prices are positively and significantly related and the forecasting ability of return and differenced models are lower than price models.

Based on these results we recommend that improvement of the return-earnings relation through aggregation of stock earnings and returns over a long period of time.

Keywords: Stock Returns, EPS, Return-Earnings Models, Amman Stock Exchange.