Int. J. Accounting and Finance, Vol. 1, No. 4, 2009 357 Copyright © 2009 Inderscience Enterprises Ltd. Positive and negative earnings and their interaction with stock returns: empirical evidence from the emerging market of Greece Panagiotis E. Dimitropoulos* Department of Sport Management University of Peloponnese 3–5 Lysandrou Str. Sparta, P.C.23100, Greece E-mail: dimitrop@uop.gr *Corresponding author Dimitrios Asteriou School of Social Sciences Hellenic Open University Bouboulinas 57–59 Str. 26222, Patras, Greece and Department of Economics City University Northampton Square EC1V 0HB, London E-mail: d.a.asteriou@eap.gr E-mail: D.A.Asteriou@city.ac.uk Abstract: This study investigates the informational content of losses and their effect on the association between earnings and stock returns. Previous studies demonstrated that losses are less informative than positive earnings since they are not expected to prolong (Hayn, 1995). Our results prove that this hypothesis is existent in the Greek capital market. Additionally, the results indicate that the frequency of losses varies with firm size. Also, the estimated Earnings Response Coefficients (ERC) increases as the measurement interval of earnings and returns expands. Finally, the tests for the effect of mean reversion in earnings, as the cause for the low informativeness of losses, did not verify our initial hypothesis. Our results are consistent to earlier studies in the USA, Finland, Australia and the Baltic region. Keywords: losses; liquidation option; earnings response coefficients; ERC; accounting earnings; financial markets, Greece. Reference to this paper should be made as follows: Dimitropoulos, P.E. and Asteriou, D. (2009) ‘Positive and negative earnings and their interaction with stock returns: empirical evidence from the emerging market of Greece’, Int. J. Accounting and Finance, Vol. 1, No. 4, pp.357–374.