Corproate Earnings and the Stock Market

Common stock prices and returns are alleged to depend on how corporate earnings progress over time. This paper investigates at the aggregate level how certain components of corporate earnings impacted stock market prices during the 1977‐93 period. The impact of market multipliers on stock market prices also is investigated. One major finding is that financial decisions, much more so than operating performance, caused the growth of stock prices during the period, while increased market multipliers had an even greater impact on the aggregate level of the stock market during that period.