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 rms 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.
Finance and Financial Management | Portfolio and Security Analysis
American Finance Association Annual Meeting, Atlanta, 3-5 January 2010
City or Country
Atlanta, GA, USA
DA, Zhi and WARACHKA, Mitchell Craig.
Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability. (2010). American Finance Association Annual Meeting, Atlanta, 3-5 January 2010. 1-36. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/1564