Earnings Expectations in the COVID Crisis

26 Pages Posted: 9 Jun 2020 Last revised: 30 Jul 2020

See all articles by Augustin Landier

Augustin Landier


David Thesmar

MIT Sloan School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: April 27, 2020


We analyze firm-level analyst forecasts during the COVID crisis. First, we describe expectations dynamics about future corporate earnings. Downward revisions have been sharp, mostly focused on 2020, 2021 and 2022, but much less drastic than the lower bound estimated by Gormsen and Koijen (2020). Analyst forecasts do not exhibit evidence of over-reaction: As of mid-May, forecasts over 2020 earnings have progressively been reduced by 16%. Longer-run forecasts, as well as expected “Long-Term Growth” have reacted much less than short-run forecasts, and feature less disagreement. Second, we ask how much discount rate changes explain market dynamics, in an exercise similar to Shiller (1981). Given forecast revisions and price movements, we estimate an implicit discount rate going from 10% in mid-February, to 13% at the end of March, back down to their initial level in mid-May. We then decompose discount rate changes into three factors: changes in unlevered asset risk premium (0%), increased leverage (+1%) and interest rate reduction (-1%). Overall, analyst forecast revisions explain most of the decrease in equity values between January 2020 and mid May 2020, but they do not explain shorter term stock market movements.

Keywords: Analyst Forecasts, Valuation, Discount rate

JEL Classification: G10, G30

Suggested Citation

Landier, Augustin and Thesmar, David, Earnings Expectations in the COVID Crisis (April 27, 2020). HEC Paris Research Paper No. FIN-2020-1377, Available at SSRN: https://ssrn.com/abstract=3587394 or http://dx.doi.org/10.2139/ssrn.3587394

David Thesmar

MIT Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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