Abnormal Returns from Predicting Earnings Thresholds

Abnormal Returns from Predicting Earnings Thresholds This study examines the performance of a trading strategy based on the prediction of firms concurrently reporting a positive earnings change and meeting analysts’ earnings forecasts. The evidence indicates that a model predicting both earnings thresholds concurrently can yield excess returns that are incremental to predicting only one earnings threshold. Further, I find that the prediction of forecast errors is relatively more important than predicting earnings changes as the incremental benefit from predicting earnings changes concurrently with forecast errors is small relative to a model that predicts only forecast errors. The results hold while controlling for various risk factors and known anomalies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Abnormal Returns from Predicting Earnings Thresholds

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2005 by Springer Science+Business Media, Inc.
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-005-4210-9
Publisher site
See Article on Publisher Site

Abstract

This study examines the performance of a trading strategy based on the prediction of firms concurrently reporting a positive earnings change and meeting analysts’ earnings forecasts. The evidence indicates that a model predicting both earnings thresholds concurrently can yield excess returns that are incremental to predicting only one earnings threshold. Further, I find that the prediction of forecast errors is relatively more important than predicting earnings changes as the incremental benefit from predicting earnings changes concurrently with forecast errors is small relative to a model that predicts only forecast errors. The results hold while controlling for various risk factors and known anomalies.

Journal

Review of Accounting StudiesSpringer Journals

Published: Aug 19, 2005

References

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