"Earning Forecasts, Earning Surprises and the Value Anomaly"(in Japanese)

We examine whether the value anomaly in the Japanese equity market can be explained by market overreactions. Using I/B/E/S market consensus data on earning forecasts, we capture market overreactions by measuring earning surprises. The typical story is that the market tends to be overly pessimistic about the fundamentals of value stocks. Therefore, positive earning surprises are observed more often than negative earning surprises on value stocks, and this causes their higher average returns. Another story is that value stocks react sharply only to positive surprises, and this raises the long-term return of value stocks above that of growth stocks, which react sharply only to negative surprises. We claim that the evidence does not give sufficient support to neither of these stories. It appears that the overreaction hypothesis is not the right answer to the value anomaly.