Analyst Long-Term Growth Forecasts, Accounting Fundamentals and Stock Returns
47 Pages Posted: 7 Apr 2016
Date Written: April 4, 2016
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: Suggested Citation