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Risk is another important determinant of the relation between unexpected earnings and stock returns. Risk affects the cost of equity capital and thus...

Risk is another important determinant of the relation between unexpected earnings and stock returns. Risk affects the cost of equity capital and thus the value of the perpetuity. Collins and Kothari (1989) provide a discussion of additional determinants of the relation between unexpected earnings and returns. How Do Earnings Numbers Relate to Stock Returns?

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