The Disparity between Long-Term and Short-Term Forecasted Earnings Growth

35 Pages Posted: 3 Feb 2009 Last revised: 25 Sep 2009

See all articles by Zhi Da

Zhi Da

University of Notre Dame - Mendoza College of Business

Mitch Warachka

Chapman University - The George L. Argyros College of Business and Economics

Date Written: September 22, 2009

Abstract

We find the disparity between long-term and short-term analyst forecasted earnings growth is a robust predictor of future returns and revisions in long-term forecasted earnings growth. After adjusting for industry characteristics, stocks whose long-term earnings growth forecasts are far above or far below their implied short-term forecasts for earnings growth have negative and positive subsequent risk-adjusted returns, respectively. Despite the importance of conditioning on short-term forecasted earnings growth, these returns are not driven by earnings momentum. Instead, consistent with investors having limited attention, predictable revisions in long-term analyst forecasts appear to induce return predictability.

Keywords: Analyst Forecasts, Return Predictability

JEL Classification: G12

Suggested Citation

Da, Zhi and Warachka, Mitch, The Disparity between Long-Term and Short-Term Forecasted Earnings Growth (September 22, 2009). Available at SSRN: https://ssrn.com/abstract=1336821 or http://dx.doi.org/10.2139/ssrn.1336821

Zhi Da

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Mitch Warachka (Contact Author)

Chapman University - The George L. Argyros College of Business and Economics ( email )

1 University Drive
Orange, CA 92866
United States

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