Earnings uncertainty leads to overly optimistic expectations, study finds.
The study looked at how past earnings volatility can predict analyst forecast errors and future returns. They found that future earnings uncertainty, not just changes in earnings, affects how optimistic analysts and investors are about future earnings. This means that future earnings uncertainty is important for predicting how well a company will do in the future. The study also showed that using forecast dispersion as a measure of earnings uncertainty is not very accurate.