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Reported Earnings and Analyst Forecasts as Competing Sources of Information: A New Approach

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  • H.M. Anderson

    ()

  • H. Chan

    ()

  • R. Faff

    ()

  • Y.K. Ho

    ()

Abstract

We study information flows between earnings and forecasts, using suitably adapted Granger causality tests. This approach complements existing cross-sectional studies by abstracting from stock market reactions to information, and focussing on dynamic interactions between information flows instead. We find bi-directional causality in timeseries of analyst earnings forecasts and reported earnings, supporting our expectation that forecasts contribute to information that is reflected in future reports. Further, our evidence of feedback suggests that past reports and forecasts are both reflected in future forecasts, implying that the information in reports has inherent value, and that forecasts do not fully substitute for reports.

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Bibliographic Info

Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2007-488.

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Length: 49 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:acb:cbeeco:2007-488

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  1. Shiller, Robert & Campbell, John, 1988. "Interpreting Cointegrated Models," Scholarly Articles 3221492, Harvard University Department of Economics.
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  14. Jones, Jefferson P & Morton, Richard M & Schaefer, Thomas F, 2000. " Valuation Implications of Investment Opportunities and Earnings Permanence," Review of Quantitative Finance and Accounting, Springer, vol. 15(1), pages 21-35, July.
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