Economics, Econometrics and Finance
8 years ago

Stock prices fail to predict future earnings for certain firms, impacting investors.

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SSRN Electronic Journal
Do Stock Prices Fully Reflect the Implications of Current Earnings for Future Earnings for Ar1 Firms?
Lawrence D. Brown, Jerry Han

Paper Summary

Stock prices do not fully reflect how current earnings affect future earnings for certain types of companies. The study looked at firms with simpler earnings patterns and found that stock prices still don't accurately predict future earnings based on current ones. This is especially true for companies with less information available to investors before earnings announcements. Large positive earnings surprises are particularly misunderstood by the stock market for these companies.

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