Do Growth Expectations Help Explain Characteristic-Sorted Portfolio Returns?
36 Pages Posted: 26 Sep 2019
Date Written: September 15, 2019
We find that accounting ratios (asset and sales growth, profitability, and equity dilution) that predict stock returns are associated with errors in analyst long-term growth forecasts. Specifically, accounting information that is associated with favorable long-term growth forecasts tends to predict negative analyst forecast errors and negative future excess returns. This and other evidence we present is consistent with the idea that biased long-term growth forecasts generate the observed return premia of popular characteristic-sorted portfolios.
Keywords: Analysts, Forecasts, Growth Expectations, Profitability,
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