4.1.1.6. Discriminating between competing hypotheses.Rese archers have
used many different research designs to discriminate between the above
four competing hypotheses to explain the weak return–earnings correlation
and why estimated earnings response coefficients are too small compared
to those predicted on the basis of a random walk time series property of
annual earnings.Pr ices leading earnings and the presence of transitory earnings
appear to be the dominant explanations for the modest contemporaneous
return–earnings association and for the observed magnitudes of earnings
response coefficients.A summary of this research will hopefully make this
apparent