Does Volatility Improve UK Earnings Forecasts?

32 Pages Posted: 11 Nov 2009

See all articles by Nikola Petrovic

Nikola Petrovic

affiliation not provided to SSRN

Stuart Manson

University of Essex

Jerry Coakley

University of Essex - Essex Business School

Date Written: 2009-07

Abstract

We investigate the relation between UK accounting earnings volatility and the level of future earnings using a unique sample comprising some 10,480 firm-year observations for 1,481 non-financial firms over the 1985–2003 period. The findings confirm the in-sample result of an inverse volatility-earnings relation only for the 1998–2003 sub-period and for the most profitable firms. The out-of-sample forecast accuracy for the top earnings quintile improves when volatility is added as a regressor to a model including only lagged earnings. The findings are consistent with the over-investment hypothesis and the view that the earnings of the most volatile firms tend to mean revert more rapidly.

Suggested Citation

Petrovic, Nikola and Manson, Stuart and Coakley, Jerry, Does Volatility Improve UK Earnings Forecasts? (2009-07). Journal of Business Finance & Accounting, Vol. 36, Issue 9-10, pp. 1148-1179, November/December 2009. Available at SSRN: https://ssrn.com/abstract=1503664 or http://dx.doi.org/10.1111/j.1468-5957.2009.02165.x

Nikola Petrovic (Contact Author)

affiliation not provided to SSRN

No Address Available

Stuart Manson

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Jerry Coakley

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
+44 1206 872455 (Phone)
+44 1206 873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/afm/staff/coakley.shtm

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