R project

  The main objective of this analysis is to understand how the stock market responds to firmspecific earnings news and cash flow news. Your write up should aim at providing high quality analyses to help a reader understand the above question. Please use data provided in the shared Google drive to finish this project. In your write up, please include the following main sections. Section 1: A short introductory paragraph describing the research objective, sample, your analyses, and the main results. Section 2: Know your data. Describe variable constructions and data cleaning steps. Specifically, 1. How do you measure unexpected equity market returns? 2. How do you measure earnings surprise and cash flow surprise? How many types of earnings are included in your data? Do you expect to find different results for different types of earnings? Why? 3. What do the distributions of your main variables look like? Are they consistent with your expectations? How do you treat extreme values? 4. Please provide a list of your main data cleaning steps. 5. Please describe your final sample. What is your sample period? How many unique firms are in your sample? What is the total number of observations with non-missing information? Section 3: Describe your empirical approach and the main results. Specifically, 1. Are earnings news and cash flow news positively correlated with unexpected market returns? Do Pearson and Spearman correlations exhibit similar or different results? Are these correlations consistent with your expectations? 2. Are earnings news and cash flow news positively correlated with each other? Why are they not perfectly correlated? What is the common information contained in both variables and the unique information contained in each variable? 3. Conduct regression analyses to examine how equity market reacts to earnings surprise and cash flow surprise. please copy-paste the regression results in your write up. Please make sure all the variables included in the regression analyses are described in Section 2. Please clearly explain the meaning behind each coefficient. How do you tell whether the estimated coefficients are different from 0? 4. What is the reported adjusted R2 ? What do you learn from the reported R2 ? 5. Are the regression results consistent with your expectations? Why or Why not? Please use your accounting/finance knowledge to explain the results. Section 4: What is your overall answer to the question “how do the stock market respond to firm-specific earnings news and cash flow news”? Are there alternative explanations that are different from your previous answer that could explain your findings? What additional information might help you distinguish these alternative explanations?