A principal-components analysis demonstrates that common earnings factors explain a substantial portion of rm-level earnings variation, implying earnings shocks have substantial systematic components and are not almost fully diversifiable as prior literature has concluded. Furthermore, the...

Francis (2011) calls for more research on “the effect of audit quality on economic outcomes.” We respond by examining whether high-quality auditors reduce stock price crash risk, an important consideration for stock investors. We argue that high-quality auditors reduce crash risk because of...

This paper studies the effects of predictability on the earnings-returns relation for individual firms and for the aggregate. We demonstrate that prices better anticipate earnings growth at the aggregate level than at the firm level, which implies that random-walk models are inappropriate for...

The relation between aggregate earnings and aggregate returns is complex and not fully understood. For example, in contrast to firm-level relations, prior literature finds aggregate earnings changes and aggregate stock returns are negatively related. This paper constructs new measures of...