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Abnormal Returns from Predicting Earnings Thresholds

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  • Lynn Rees

    (Texas A&M University)

Abstract

This study examines the performance of a trading strategy based on the prediction of firms concurrently reporting a positive earnings change and meeting analysts’ earnings forecasts. The evidence indicates that a model predicting both earnings thresholds concurrently can yield excess returns that are incremental to predicting only one earnings threshold. Further, I find that the prediction of forecast errors is relatively more important than predicting earnings changes as the incremental benefit from predicting earnings changes concurrently with forecast errors is small relative to a model that predicts only forecast errors. The results hold while controlling for various risk factors and known anomalies.

Suggested Citation

  • Lynn Rees, 2005. "Abnormal Returns from Predicting Earnings Thresholds," Review of Accounting Studies, Springer, vol. 10(4), pages 465-496, December.
    • Handle: RePEc:spr:reaccs:v:10:y:2005:i:4:d:10.1007_s11142-005-4210-9
    DOI: 10.1007/s11142-005-4210-9
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    References listed on IDEAS

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    1. Holthausen, Robert W. & Larcker, David F., 1992. "The prediction of stock returns using financial statement information," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 373-411, August.
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    Cited by:

    1. Lynn Rees & Wayne Thomas, 2010. "The stock price effects of changes in dispersion of investor beliefs during earnings announcements," Review of Accounting Studies, Springer, vol. 15(1), pages 1-31, March.

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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