The Present Value of Corporate Profits: A Forecasters' Survey Perspective

25 Pages Posted: 13 Feb 2019

See all articles by Michal Andrle

Michal Andrle

International Monetary Fund (IMF)

Date Written: January 2019

Abstract

This paper presents and discusses the estimates of the present value of corporate profits in the United States from 1984 to 2018. To value the expected income stream, it uses the long-range forecasts of professional forecasters for pre-tax corporate earnings and long-term Treasury note yields, sourced from the Blue Chip Economic Indicators survey. The appraised value of corporate earnings can point in real time at periods where market prices are deviating from valuations implied by expected earnings and interest rates. Market participants' forecasts seem to interpret most of the earnings fluctuations as permanent, underestimating the cyclical fluctuations The over-reaction to transitory shocks and changes in long-term outlook leads to swings in the valuation, in line with swings in the observed market prices.

Keywords: Asset prices, Corporate profits, Forecasting, present value, corporate earnings, General, Asset Pricing, Forecasting and Simulation

JEL Classification: G10, G12, E37

Suggested Citation

Andrle, Michal, The Present Value of Corporate Profits: A Forecasters' Survey Perspective (January 2019). IMF Working Paper No. 19/12, Available at SSRN: https://ssrn.com/abstract=3333736

Michal Andrle (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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