Under the strong form of the efficient market hypothesis, equity prices are expected in the aggregate to reflect all relevant information at a given time.
Some studies reveal there are four factors that affect Earnings Response Coefficient (ERC), namely : beta, capital structure, persistence and growth.
[citation needed] Reasons for differential market response: ERCs are used primarily in research in accounting and finance.
Research in Finance has used ERCs to study, among other things, how different investors react to information events.
As demonstrated in the above model, the ERC is generally considered to be the slope coefficient of a linear equation between unexpected earnings and equity return.