The sharp economic downturn and turmoil in the financial markets, commonly referred to as the "global financial crisis," has spawned an impressive outpouring of blame. The efficient market hypothesis (EMH)-the idea that competitive financial markets exploit all available information when setting...

<heading id="h1" level="1" implicit="yes" format="display">ABSTRACT</heading>A principal-components analysis demonstrates that common earnings factors explain a substantial portion of firm-level earnings variation, implying earnings shocks have substantial systematic components and are not almost fully diversifiable as prior literature has concluded. Furthermore,...