Fundamental information and share prices in Japan: evidence from earning surprises and management predictions

Over the period 1985–1993, company-specific earnings fundamentals play a significant role in the pricing of Japanese equities. Moreover, the information content of management forecasts of future earnings is far larger than that conveyed by announcements of current earnings. Despite this base in fundamentals, the dramatic surge and crash of the Japanese market show a changing role for earnings information. During the market run up, price responses to earnings information are lower. In addition, market reactions to good versus bad news change over time. The patterns are broadly consistent with the view that the Japanese market did pay less attention to earnings fundamentals (and especially to bad news) in the alleged bubble period of the late 1980s.