Earnings levels vs. changes: Key to predicting stock returns accurately.
The article explores whether earnings levels or changes are better at predicting stock returns over long periods. The researchers found that the choice depends on whether earnings are temporary or permanent. They also discovered that earnings levels are closely linked to unexpected earnings, explaining why they are often successful in predicting stock returns. Additionally, the study suggests that accounting earnings provide valuable information compared to other performance measures like Economic Value Added and residual income.