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Security Analyst Forecasts And The Earnings Yield Anomaly

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  • W. Scott Bauman
  • Richard J. Dowen

Abstract

This paper tests for existence of a positive relationship between the earnings yield anomaly and the earnings forecast error (EFE) effect. The earnings yield anomaly recognizes that stocks with low price‐earnings ratios produce positive risk‐adjusted returns. The EFE effect refers to the positively related stock price response to differences in reported earnings per share (EPS) and the EPS previously forecast by security research analysts. The within group method is used in order to remove the effect of the EFE. Empirical research findings based on 1979‐1988 data, indicate that the EFE effect does not account for the earnings yield anomaly.

Suggested Citation

  • W. Scott Bauman & Richard J. Dowen, 1994. "Security Analyst Forecasts And The Earnings Yield Anomaly," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(2), pages 283-291, March.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:2:p:283-291
    DOI: 10.1111/j.1468-5957.1994.tb00319.x
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    References listed on IDEAS

    as
    1. Cook, Thomas J. & Rozeff, Michael S., 1984. "Size and Earnings/Price Ratio Anomalies: One Effect or Two?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(4), pages 449-466, December.
    2. J. G. Cragg & Burton G. Malkiel, 1968. "The Consensus And Accuracy Of Some Predictions Of The Growth Of Corporate Earnings," Journal of Finance, American Finance Association, vol. 23(1), pages 67-84, March.
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