Title

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

Publication Type

Conference Paper

Publication Date

2008

Abstract

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.

Keywords

Analyst Forecasts, Limited Attention, Return Predictability

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Financial Economics

Publication

Financial Management Association Meeting

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