HCBE Faculty Articles
An Exploration of Earnings Whispers Forecasts as Predictors of Stock Returns
Document Type
Article
Publication Title
Journal of Economic Studies
ISSN
0144-3585
Publication Date
2005
Abstract/Excerpt
Purpose
– To test the Miller Price Optimism Model using a new proxy for heterogenous expectations and to examine if high differential stocks behave like glamour stocks and low differential stocks behave like value stocks.
Design/methodology/approach
– Whisper/analyst forecast differentials were measured for a sample of stocks, combined into portfolios and held for one month. If the Miller model was supported, high differential stocks were expected to have lower portfolio returns than low differential stocks due to the greater divergence between optimistic whisper forecasts and rational analysts consensus forecasts.
Findings
– High differential quintiles had significantly lower future returns than low differential quintiles supporting the Miller model. High differential stocks resembled glamour stocks while low differential stocks behaved like value stocks.
Research limitations/implications
– These results pertain to the ultra‐short time horizon of two months prior to the earnings announcement. Future research should replicate this study for a longer 3‐12 month time horizon.
Practical implications
– Ultra short‐term investors should hold glamour stocks and long term investors should hold value stocks. Rising volatility suggests that investors should define the time horizon for holding assets.
Originality/value
– It is one of only two studies that directly uses earnings forecasts as a proxy for heterogenous expectations. It adds to the sparse literature on whisper forecasts. It may be used by academicians studying price optimism effects and institutional investors following stock returns during earnings announcements.
DOI
10.1108/01443580510631405
Volume
32
Issue
6
First Page
524
Last Page
539
NSUWorks Citation
Abraham, Rebecca, "An Exploration of Earnings Whispers Forecasts as Predictors of Stock Returns" (2005). HCBE Faculty Articles. 846.
https://nsuworks.nova.edu/hcbe_facarticles/846
