The Level and Persistence of Growth Rates

52 Pages Posted: 14 Jun 2002

See all articles by Louis K.C. Chan

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance

Jason J. Karceski

LSV Asset Management

Josef Lakonishok

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2002

Abstract

Expectations about long-term earnings growth are crucial to valuation models and cost of capital estimates. We analyze historical long-term growth rates across a broad cross-section of stocks using several indicators of operating performance. We test for persistence and predictability in growth. While some firms have grown at high rates historically, they are relatively rare instances. There is no persistence in long-term earnings growth beyond chance, and there is low predictability even with a wide variety of predictor variables. Specifically, IBES growth forecasts are overly optimistic and add little predictive power. Valuation ratios also have limited ability to predict future growth.

JEL Classification: G12, G14, G31

Suggested Citation

Chan, Louis K.C. and Karceski, Jason J. and Lakonishok, Josef, The Level and Persistence of Growth Rates (February 2002). EFMA 2002 London Meetings. Available at SSRN: https://ssrn.com/abstract=313984 or http://dx.doi.org/10.2139/ssrn.313984

Louis K.C. Chan (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-6391 (Phone)
217-244-3102 (Fax)

Jason J. Karceski

LSV Asset Management ( email )

155 N Wacker Dr.
Chicago, IL 60654
United States
352-246-7674 (Phone)

Josef Lakonishok

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-7185 (Phone)
217-244-3102 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
964
rank
18,078
Abstract Views
3,615
PlumX Metrics