Analysts, Macroeconomic News, and the Benefit of In-House Economists

Hugon, Artur; Kumar, Alok; Lin, An‐Ping

doi:10.2139/ssrn.2249137

Cited by 2 publications

(4 citation statements)

References 22 publications

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“…However, their research design does not allow them to link macroeconomic news to subsequent realized earnings and hence to evaluate the efficiency of analysts' response to the macroeconomic news nor to derive any return predictability implication. Hugon et al (2016) show that the presence of in-house macroeconomists in sell-side research departments improves the extent to which analysts' earnings forecasts incorporate macroeconomic news. Chordia and Shivakumar (2005).…”

Section: Introductionmentioning

confidence: 93%

The real-time information content of macroeconomic news: implications for firm-level earnings expectations

Carabias

2018

Rev Account Stud

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This paper investigates the usefulness of the real-time macroeconomic newsflow as a leading indicator of firm-level end-of-quarter realized earnings. Using recent advances in macroeconomics, I develop a nowcasting model for quarterly earnings and provide two main findings. First, I show that my model provides out-of-sample expectations that are as accurate as analysts' forecasts. Second, macroeconomic news embedded in my nowcasts is not fully incorporated into investors' earnings expectations and predicts future abnormal returns around earnings announcements. These findings have three main implications for capital markets research. First, real-time macroeconomic news can be used to update earnings expectations in real-time. Second, there are economic benefits of doing so, as evidenced by the magnitude of risk-adjusted returns around earnings announcements. Third, after three decades of almost nonexistent research on time-series models for quarterly earnings, the door is open again for fruitful research in this area.

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Section: Introductionmentioning

confidence: 93%

The real-time information content of macroeconomic news: implications for firm-level earnings expectations

Carabias

2018

Rev Account Stud

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“…Hann et al (2011) find that analysts' forecast errors are predictably more negative than those of economists following the negative economic news, suggesting that analysts underreact to negative macroeconomic news and then stock market overweighs on analysts' earnings forecast. Hugon et al (2013) also find that analysts underreact to negative macroeconomic news and their forecasts are more efficient when there are in-house macro-economists.…”

Section: Earnings Forecasts and Macroeconomic Conditionmentioning

confidence: 83%

“…According to Hess and Kreuzmann (2009), "companies' realized earnings depend on overall economic conditions" (p. 1). Hugon et al (2013) also argue that macroeconomic factors have major impacts on corporate earnings. Moreover, assuming that changes in overall business conditions are related to information components in macroeconomic conditions, Agarwal and Hess (2012) argue that the effects of changing business conditions on future earnings are not negligible for asset pricing (p. 7).…”

Section: Earnings Forecasts and Macroeconomic Conditionmentioning

confidence: 99%

“…While macroeconomic condition is an effective factor in predicting a firm's future performance, market participants and information intermediaries (such as analysts) are shown to underreact to macroeconomic news (Darrough and Russell, 2002;Hess and Kreutzmann, 2009;Mckinsey, 2010;Hann et al, 2011;Agarwal and Hess, 2011;Hugon et al, 2013). For example, Darrough and Russell (2002) find that analysts fail to forecast earnings downward in response to the market crash in 1987 and the Asian financial crisis in 1997.…”

Section: Earnings Forecasts and Macroeconomic Conditionmentioning

confidence: 99%

See 1 more Smart Citation

Earnings Persistence Over The Macroeconomic Cycle: Evidence From Korea

Park¹,

Shin²

2015

JABR

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This paper examines whether the persistence of earnings components is affected by the macroeconomic cycle in Korea. To measure the macroeconomic cycle, we use the cycle variation value of Coincident Composite Index (CCI) data obtained from the Korea National Statistics Office. Results from a sample of 21,232 firm-quarter observations over the period 2002-2013 indicate that accruals (cash flows) are more persistent than cash flows (accruals) during expansions (recessions). Also, when going from an expansion to a recession, a decline in accruals persistence is greater than that in cash flows persistence. When total accruals are decomposed into non-discretionary and discretionary portions using the modified Jones model (Dechow et al., 1995), we find that non-discretionary accruals are most persistent than the other components during both expansions and recessions, and a decline in persistence is largest (smallest) for discretionary accruals (cash flows) when going from an expansion to a recession. Most of these results hold when we split the macroeconomic cycle into four phases including transitory periods. Taken together, we provide evidence on the differential effects of macroeconomic cycle on the persistence of individual earnings components in Korea. Our findings suggest that macroeconomic variables are needed to be considered in studies on earnings persistence.

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Analysts, Macroeconomic News, and the Benefit of In-House Economists

Cited by 2 publications

References 22 publications

The real-time information content of macroeconomic news: implications for firm-level earnings expectations

The real-time information content of macroeconomic news: implications for firm-level earnings expectations

Earnings Persistence Over The Macroeconomic Cycle: Evidence From Korea

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