The Relationship between Earnings and Stock Returns on the Market and Sector Levels

Tareq Z. Mashoka


This paper aims at examining the relationship between earnings and stock returns on a sample of firms listed in the Amman Stock Exchange (ASE). The study assumes that this relationship becomes stronger or weaker based on sector and industry classification. Results show that the relationship between earnings and stock returns is stronger in the banking sector and weaker in the manufacturing sector. The results also show that as the percentage of accruals increase in earnings, the relationship becomes weaker. Furthermore, the results show that the investors understand the components of earnings suggesting that they understand the accounting practices relative to each sector.


Accruals, Operating Cash Flows, Financial Market, Stock Prices

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