It has been found that prices often lead earnings. Why is this thought to be the case:

Question

Quizplus · Accepted Answer

All of the options provided (A, B, and C) are reasons why prices might lead earnings. Accounting conservatism can delay the recognition of positive earnings signals, affecting how quickly firm value is reflected in earnings. Accounting statements also struggle to accurately incorporate intangible assets like human capital, which can affect firm value ahead of earnings reports. Additionally, the asymmetric recognition criteria for losses versus gains mean that losses are often recognized more swiftly than gains, further contributing to the lag between price adjustments and reported earnings.

It Has Been Found That Prices Often Lead Earnings