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Earnings Volatility and Earnings Predictability

Journal of Accounting and Economics, Forthcoming

57 Pages Posted: 30 Aug 2006 Last revised: 22 Feb 2012

Ilia D. Dichev

Emory University - Department of Accounting

Vicki Wei Tang

Georgetown University - Robert Emmett McDonough School of Business

Date Written: Spetember 19, 2008

Abstract

Survey evidence indicates widely held managerial beliefs that earnings volatility is negatively related to earnings predictability. In addition, existing research suggests that earnings volatility is determined by economic and accounting factors, and both of these factors reduce earnings predictability. We find that the consideration of earnings volatility brings substantial improvements in the prediction of both short and long-term earnings. Conditioning on volatility information also allows one to identify systematic errors in analyst forecasts, which implies that analysts do not fully understand the implications of earnings volatility for earnings predictability.

Keywords: earnings volatility, earnings predictability

JEL Classification: M41

Suggested Citation

Dichev, Ilia D. and Tang, Vicki Wei, Earnings Volatility and Earnings Predictability (Spetember 19, 2008). Journal of Accounting and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=927305 or http://dx.doi.org/10.2139/ssrn.927305

Ilia D. Dichev (Contact Author)

Emory University - Department of Accounting ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

Vicki Wei Tang

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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