Abstract

http://ssrn.com/abstract=1107637
 
 

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


Zhi Da


University of Notre Dame - Mendoza College of Business

Mitch Warachka


Claremont Colleges - Robert Day School of Economics and Finance

January 1, 2009

AFA 2010 Atlanta Meetings Paper

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.

Number of Pages in PDF File: 36

Keywords: Analyst Forecasts, Limited Attention, Return Predictability

JEL Classification: G12, G14

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Date posted: March 19, 2008 ; Last revised: March 17, 2009

Suggested Citation

Da, Zhi and Warachka, Mitch, Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability (January 1, 2009). AFA 2010 Atlanta Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1107637 or http://dx.doi.org/10.2139/ssrn.1107637

Contact Information

Zhi Da
University of Notre Dame - Mendoza College of Business ( email )
Notre Dame, IN 46556-5646
United States
Mitch Warachka (Contact Author)
Claremont Colleges - Robert Day School of Economics and Finance ( email )
500 E. Ninth St.
Claremont, CA 91711-6420
United States
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