HCBE Faculty Articles

Title

Earnings Whisper Forecasts As Predictors of Security Returns: Support For The Miller Price Optimism Model

Document Type

Article

Date

2005

Publication Title

Journal of Business & Leadership

ISSN or ISBN

1559-3355

Volume

1

Issue

1

First Page

1

Last Page

11

Description

This study provides empirical support for the Miller (1977) model which sets forth that security returns reflect the opinions of optimists in markets where more rational and pessimistic trading is excluded by high short-sale costs. Using the differential between earnings whisper forecasts and analysts’ consensus forecasts as a proxy for heterogeneous expectations of earning, this study finds that for stacks with higher differentials, optimistic valuations dominate resulting in significantly lower future security returns than for stocks with lower differentials. Low differentials stacks are shown to resemble value stacks while high differential stocks display the characteristics of glamour stocks.

Peer Reviewed

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