Analyst Long-Term Growth Forecasts, Accounting Fundamentals and Stock Returns

47 Pages Posted: 7 Apr 2016

See all articles by Gregg S. Fisher

Gregg S. Fisher

Gerstein Fisher

Ronnie Shah

Deutsche Bank; University of Texas at Austin - Department of Finance

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: April 4, 2016

Abstract

We decompose consensus analyst long-term growth forecasts into a hard growth component that captures accounting information (asset and sales growth, profitability and equity dilution) and an orthogonal soft growth component. The soft component does not forecast future returns, and the hard component does forecast future returns, but in a perverse way. Specifically, stocks with accounting information indicating favorable long-term growth forecasts tend to realize negative future excess returns. This and other evidence we present is consistent with biased long-term growth forecasts generating stock mispricing.

Keywords: Analyst Forecasts, Return Predictability, Profitability, Asset Growth, Equity Dilution

JEL Classification: G12

Suggested Citation

Fisher, Gregg S. and Shah, Ronnie and Titman, Sheridan, Analyst Long-Term Growth Forecasts, Accounting Fundamentals and Stock Returns (April 4, 2016). Available at SSRN: https://ssrn.com/abstract=2759332 or http://dx.doi.org/10.2139/ssrn.2759332

Gregg S. Fisher

Gerstein Fisher ( email )

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HOME PAGE: http://www.gersteinfisher.com

Ronnie Shah (Contact Author)

Deutsche Bank ( email )

60 Wall St
New York, NY 10017
United States

HOME PAGE: http://www.db.com

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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