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The Disparity Between Long-Term And Short-Term Forecasted Earnings Growth, Zhi Da, Mitch Warachka
The Disparity Between Long-Term And Short-Term Forecasted Earnings Growth, Zhi Da, Mitch Warachka
Business Faculty Articles and Research
We find the disparity between long-term and short-term analyst forecasted earnings growth is a robust predictor of future returns and long-term analyst forecast errors. 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 along with downward and upward revisions in long-term forecasted earnings growth, respectively. Additional results indicate that investor inattention toward firm-level changes in long-term earnings growth is responsible for these risk-adjusted returns.