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The main purpose of this study is to explore the
information content of security prices with quarterly data
in the Taiwan security market. References for the theory of
the study are made to the studies by Beaver, Lambert and
Morse (1980) as well as by Beaver, Lambert and Ryan (1987). Our
research design is as follows: . We run a multiple
regression analysis by seting the percentage change in
stock prices as dependent variable, and current and future
quarterly earnings changes deflated by security
prices as the independent variables. This "traditional"
regression depicts how current earnings are associated
with current price changes. In addition, it also portrays the
relationship between current price changes with future
earnings. If the latter relationship exists, quarterly
earnings are of a compound process. . Then, we run a
"reverse" regression, by setting current quarterly earnings
as the dependent variable, contemporaneous and each post
quarterly security price changes as the independent
variable. The data set consists of all the firms traded in
The Taiwan Stock Exchange between 1982 to 1991. The
conclusion is as follows: The current quarterly security
price change is positively associated with the current
earnings, the one-quarter-ahead, the two-quarter-ahead, and the
three-quarter-ahead earnings. The findings strongly suggest
that the quarterly earnings contain permanent as
well as temporary components. Furthermore, the result
refutes common belief that the earnings information is
useless in the decision process of investment.
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