THE ROLE OF LONG RETURNS IN SECURITY VALUATION: INTERNATIONAL EMPIRICAL EVIDENCE

This study examines empirically the role of financial information in explaining long return windows in three major capital markets, UK, USA and France. We hypothesize that the relationship between financial information and security returns improves the longer the return window, and that this robustness depends on the country under investigation. The dataset consists of more than 40,000 USA, UK and French firm-year observations over a nine year period. Multivariate statistical regression analysis is undertaken to test the major research hypotheses. Results indicate that the importance of earnings and cash flows in all three countries over a longer period of time (more than a year and up to five years) is more robust, and that investors perceive earnings and cash flows differently. Interestingly, the importance of earnings and cash flows from one to five years , as measured by the R2, increases the highest in the USA (almost quadruples), whereas increases the least in France. These results are not that surprising in that in Anglo-Saxon countries such as the USA and the UK the increase is greater than in a code law country such as France. This is due to the fact that in the shorter run there is a greater manipulation of financial information in Anglo-Saxon countries than in more conservative countries such as France.