Several researchers have investigated the spillover effects between the US and foreign financial markets (e.g., Lin, Engle, and Ito, 1994; Hamao, Masulis, and Ng, 1990; Susmel and Engle, 1994; B.-S. Lee, Rui, and Wang, 2004; Baur and Jung, 2006).
The current global financial crisis that seem to have been triggered from the events in the US financial markets highlight the importance of such studies on the linkages between the US and foreign financial markets.
Recent literature on U.S. labor markets identifies two important changes in national labor supplies. One is rising educational attainment of the labor force, among both new entrants and existing workers (Johnson, 1997). A second is rising immigration of individuals with low education levels relative to U.S. natives (Borjas, 1999). Both of these labor-supply shifts have varied across regions. For instance, immigration “gateway” states such as California have attracted a large share of new immigrants, and the increase in the relative supply of more educated workers appears to have been strongest in the Northeast.
How do regions absorb differential changes in relative labor supplies? We delineate four adjustment mechanisms: changes in regional relative factor prices, interregional migration of labor and/or capital, changes in the regional output mix, and changes in underlying production technology. While the first mechanism may occur in either closed or open economies, the other three generally depend on regional openness to factor, trade, or technology flows. In this paper, we examine the mechanisms through which U.S. states absorb changes in relative labor supplies, with an emphasis on how economic openness conditions regional labor-market adjustment.
Prior research in accounting indicates the importance placed by market participants on two features associated with earnings the trend in a firm’s earnings over time, and whether the firms’ earnings meet or beat analysts’ forecasts. For example, Barth, Elliott, and Finn (1999) find that when earnings show consistent increases over time (i.e., exhibit a positive trend), firms are rewarded with a higher price-earnings multiple. Bartov, Givoly, and Hayn (2002) reveal a market valuation premium placed on firms that meet or beat analysts’ earnings forecasts, and Kasznik and McNichols (2002) show that beating these forecasts consistently is particularly valuable. Most of the existing research has separately examined either earnings’ trends or meet/beat performance, with less focus on examining how the market reacts to both factors in combination.
The purpose of our study is to investigate how investors’ react to the combination of earnings trends and performance relative to analysts’ forecasts over multiple periods. We show this reaction is not static, but rather depends on the intertemporal consistency of those two earnings features.
