Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability

Long-term earnings expectations are critically important to stock price valuations. We identify relative optimism and relative pessimism in long-term analyst forecasts by comparing these forecasts with implied short-term earnings growth forecasts across firms within the same industry. Stocks with re...

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Main Authors: WARACHKA, Mitchell Craig, Da, Z.
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Language:English
Published: Institutional Knowledge at Singapore Management University 2008
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/1565
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Institution: Singapore Management University
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spelling sg-smu-ink.lkcsb_research-25642010-09-23T06:24:04Z Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability WARACHKA, Mitchell Craig Da, Z. Long-term earnings expectations are critically important to stock price valuations. We identify relative optimism and relative pessimism in long-term analyst forecasts by comparing these forecasts with implied short-term earnings growth forecasts across firms within the same industry. Stocks with relatively optimistic and relatively pessimistic long-term analyst forecasts have negative and positive risk-adjusted returns, respectively. This return predictability depends critically on short-term forecasts since relative optimism and relative pessimism originate from the slow diffusion of information from short-term to long-term analyst forecasts. Our results indicate that market participants have limited attention regarding the long-term earnings implications of information. 2008-01-01T08:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/1565 Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Analyst Forecasts Limited Attention Return Predictability Finance and Financial Management Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Analyst Forecasts
Limited Attention
Return Predictability
Finance and Financial Management
Portfolio and Security Analysis
spellingShingle Analyst Forecasts
Limited Attention
Return Predictability
Finance and Financial Management
Portfolio and Security Analysis
WARACHKA, Mitchell Craig
Da, Z.
Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability
description Long-term earnings expectations are critically important to stock price valuations. We identify relative optimism and relative pessimism in long-term analyst forecasts by comparing these forecasts with implied short-term earnings growth forecasts across firms within the same industry. Stocks with relatively optimistic and relatively pessimistic long-term analyst forecasts have negative and positive risk-adjusted returns, respectively. This return predictability depends critically on short-term forecasts since relative optimism and relative pessimism originate from the slow diffusion of information from short-term to long-term analyst forecasts. Our results indicate that market participants have limited attention regarding the long-term earnings implications of information.
format text
author WARACHKA, Mitchell Craig
Da, Z.
author_facet WARACHKA, Mitchell Craig
Da, Z.
author_sort WARACHKA, Mitchell Craig
title Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability
title_short Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability
title_full Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability
title_fullStr Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability
title_full_unstemmed Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability
title_sort long-term earnings growth forecasts, limited attention, and return predictability
publisher Institutional Knowledge at Singapore Management University
publishDate 2008
url https://ink.library.smu.edu.sg/lkcsb_research/1565
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