Earnings persistence reshapes stock market valuation, signaling changing investment landscape.
The study looked at how consistent earnings affect how important earnings levels and changes are for predicting stock returns in the U.S. stock market. They found that both earnings levels and changes are more useful together than on their own. When earnings are more consistent over time, changes in earnings become more important for predicting stock returns. However, the relationship between earnings levels and changes isn't very strong, suggesting that the importance of both may be decreasing in recent years for U.S. stocks.