The Hot-Growth Companies: How Well Do Analysts Predict Their Performance?

Journal of Economics and Business, 2010

38 Pages Posted: 11 Mar 2010 Last revised: 18 Jan 2011

See all articles by Susana Yu

Susana Yu

Iona College

Richard A. Lord

Montclair State University - School of Business

Gwendolyn P. Webb

City University of New York (CUNY) - Baruch College - Zicklin School of Business

Date Written: November 21, 2009

Abstract

We assess several aspects of analysts’ forecasting performance for stocks included in Business Week’s annual list of 100 “hot-growth” companies. We find that analysts underestimate earnings on average before stocks are included in the list, and that they tend to overestimate them afterward. However, analysts revise their earnings estimates downward after stocks are included in the list, and the largest downward estimate revisions are followed by significant negative stock returns. We conclude that analysts correctly assess the diminished prospects of stocks designated as “hot-growth” companies and that their forecast revisions have significant predictive power and value.

Keywords: Earnings Forecasts, Earnings Surprise, Estimate Revisions

JEL Classification: G14, G39

Suggested Citation

Yu, Susana and Lord, Richard A. and Webb, Gwendolyn P., The Hot-Growth Companies: How Well Do Analysts Predict Their Performance? (November 21, 2009). Journal of Economics and Business, 2010. Available at SSRN: https://ssrn.com/abstract=1567607

Susana Yu (Contact Author)

Iona College ( email )

715 North Avenue
New Rochelle, NY 10801
United States

Richard A. Lord

Montclair State University - School of Business ( email )

Upper Montclair, NJ 07043
United States
973-655-7448 (Phone)
973-655-7629 (Fax)

Gwendolyn P. Webb

City University of New York (CUNY) - Baruch College - Zicklin School of Business ( email )

Department of Economics & Finance
P.O. Box B13-289 1 Bernard Baruch Way
New York, NY 10010
United States
646-312-3485 (Phone)

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