We provide strong support for the underappreciated expected earnings hypothesis of negative correlation between aggregate stock returns and earnings (Sadka and Sadka (2009); Choi, Kalay, and Sadka (2016)). For the 1970 to 2000 period studied by Kothari, Lewellen, and Warner (2006), our powerful...

We advance understanding of earnings announcement returns and post-earnings announcement returns (PEAR) with a model that combines limited attention (Hirshleifer and Teoh, 2003) and salience (Bordalo, Gennaioli, and Shleifer, 2012). By including salience effect bias, our model predicts stronger...