Review of Accounting Studies

, Volume 7, Issue 2–3, pp 289–312

Earnings Surprises, Growth Expectations, and Stock Returns or Don't Let an Earnings Torpedo Sink Your Portfolio

  • Douglas J. Skinner
  • Richard G. Sloan

DOI: 10.1023/A:1020294523516

Cite this article as:
Skinner, D.J. & Sloan, R.G. Review of Accounting Studies (2002) 7: 289. doi:10.1023/A:1020294523516


We provide new evidence that the inferior returns to growth stocks relative to value stocks are the result of expectational errors about future earnings performance. Our evidence demonstrates that growth stocks exhibit an asymmetric response to earnings surprises. We show that while growth stocks are at least as likely to announce negative earnings surprises as positive earnings surprises, they exhibit an asymmetrically large negative price response to negative earnings surprises. After controlling for this asymmetric price response, we find no remaining evidence of a return differential between growth and value stocks. We conclude that the inferior return to growth stocks is attributable to overoptimistic expectational errors that are corrected through subsequent negative earnings surprises.

earnings surprises earnings torpedoes value growth glamour 

Copyright information

© Kluwer Academic Publishers 2002

Authors and Affiliations

  • Douglas J. Skinner
  • Richard G. Sloan

There are no affiliations available

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