An Evaluation of Financial Analysts and Naïve Methods in Forecasting Long-Term Earnings

Lacina, Michael; Lee, B. Brian; Xu, Randall Zhaohui

doi:10.1108/s1477-4070(2011)0000008009

Cited by 13 publications

(75 citation statements)

References 35 publications

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“…In this paper, we follow the same methodology with one contextspecific difference: Brazilian market has one of the lowest analyst coverages in the world (Bae, Tan, & Welker, 2008). Moreover, several recent studies show that analyst forecasts can be as biased as simple extrapolations (Bradshaw, Drake, Myers, & Myers, 2012;Lacina, Lee, & Xu, 2011). To address both issues (low analyst coverage and biased forecasts) and consistent with Fisher (1930) and Graham and McGowan (2005), we assume that future stock prices can be expressed with a price-level correction (inflation rate) plus a real growth output (based on gross domestic product (GDP) growth rate).…”

Section: Empirical Implementation Of the Valuation Modelsmentioning

confidence: 99%

The Role of Earnings Persistence in Valuation Accuracy and the Time Horizon

Pimentel

Aguiar

2016

Rev. adm. empres.

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Based on the assumption that earnings persistence has implications for both financial analysis and compensation contracts, the aim of this paper is to investigate the role of earnings persistence assuming that (i) more persistent earnings are likely to be a better input to valuation models and (ii) more persistent earnings are likely to serve as a proxy for long-term market and managerial orientation. The analysis is based on Brazilian listed firms from 1995 to 2013, and while we document strong support for the relevance of earnings persistence in financial analysis and valuation, we fail to document a significant relationship between earnings persistence and long-term value orientation. These results are sensitive to different specifications, and additional results suggest that firms' idiosyncratic risk (total risk) is relevant to explain the focus on short-term outcomes (short-termism) across firms. The main contribution of this paper is to offer empirical evidence for the relevance of accounting numbers in both valuation and contractual theories in an emergent market.

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Section: Empirical Implementation Of the Valuation Modelsmentioning

confidence: 99%

The Role of Earnings Persistence in Valuation Accuracy and the Time Horizon

Pimentel

Aguiar

2016

Rev. adm. empres.

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“…For example, Easton and Monahan (2005) find a negative correlation between analyst-based COE and realized stock returns and attribute the anomalous relationship to the biases in analysts' earnings forecasts. As forecast horizons expand, the quality of analysts' forecasts, including their LTG forecasts, become less reliable (Bradshaw et al 2012;Lacina et al 2010). Thus, we expect that in the estimation of cost of equity, using a better quality prediction of long-term growth in place of LTG will yield better quality outcomes.…”

Section: Estimate the Cost Of Equitymentioning

confidence: 99%

Predicting Long-Term Earnings Growth from Multiple Information Sources

Gao

2012

SSRN Journal

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“…The relevance of the study lays on the fact that recent evidence in Freeman, Koch and Li (2011) shows that historical ERCs are useful in predicting future returns-earnings relations. Additionally, recent evidence in Bradshaw et al (2012) and Lacina, Lee and Xu (2011) shows that earnings forecast based on time-series estimation are more accurate than analysts' forecasts, consequently being better inputs for stock valuation purposes. Similarly, Dalmácio et al (2013), Martinez and Dumer (2012) and Saito, Villalobos and Benetti (2008) document significant errors and biases in analysts' projections for Brazilian firms.…”

Section: Introductionmentioning

confidence: 99%