Earnings Volatility and Earnings Predictability
Ilia D. Dichev
Emory University - Goizueta Business School
Vicki Wei Tang
Georgetown University - Robert Emmett McDonough School of Business
Spetember 19, 2008
Journal of Accounting and Economics, Forthcoming
Survey evidence indicates widely held managerial beliefs that earnings volatility is negatively related to earnings predictability. In addition, existing research suggests that earnings volatility is determined by economic and accounting factors, and both of these factors reduce earnings predictability. We find that the consideration of earnings volatility brings substantial improvements in the prediction of both short and long-term earnings. Conditioning on volatility information also allows one to identify systematic errors in analyst forecasts, which implies that analysts do not fully understand the implications of earnings volatility for earnings predictability.
Number of Pages in PDF File: 57
Keywords: earnings volatility, earnings predictability
JEL Classification: M41
Date posted: August 30, 2006 ; Last revised: February 22, 2012
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