IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v13y2008i2d10.1007_s11142-007-9065-9.html
   My bibliography  Save this article

On the relation between predictable market returns and predictable analyst forecast errors

Author

Listed:
  • John Hughes

    (University of California, Los Angeles)

  • Jing Liu

    (University of California, Los Angeles)

  • Wei Su

    (Fuller & Thaler Asset Management, Inc.)

Abstract

We investigate the relation between predictable market returns and predictable analyst forecast errors. Perfect correlation between predictable components of forecast errors and abnormal returns would lend credence to the view that pricing anomalies are not merely an artifact of inadequately controlled risk. Our evidence implies an imperfect correlation. Moreover, we find that while the predictable component of abnormal returns is significantly associated with future forecast errors, trading strategies based directly on the predictable component of forecast errors are not profitable. Further implications of our findings are that predictable components of analysts’ forecast errors are robust with respect to loss functions and analysts’ earnings forecasts may significantly diverge from the market expectations.

Suggested Citation

  • John Hughes & Jing Liu & Wei Su, 2008. "On the relation between predictable market returns and predictable analyst forecast errors," Review of Accounting Studies, Springer, vol. 13(2), pages 266-291, September.
    • Handle: RePEc:spr:reaccs:v:13:y:2008:i:2:d:10.1007_s11142-007-9065-9
    DOI: 10.1007/s11142-007-9065-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11142-007-9065-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11142-007-9065-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reaccs:v:13:y:2008:i:2:d:10.1007_s11142-007-9065-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.