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Does volatility improve UK earnings forecasts?

Research output: Working paperWorking paper and Preprints

  • N Petrovic
  • Stuart Manson
  • Jerry Coakley
Original languageEnglish
Publication dateAug 2007
StatePublished

Abstract

We investigate the relation between UK accounting earnings volatility and the level of future earnings using a unique sample comprising some 10,480 firm-year observations for 1,481 non-financial firms over the 1985-2003 period. The findings confirm the in-sample result of an inverse volatility-earnings relation only for the 1998-2003 sub-period and for the most profitable firms. The out-of-sample forecast accuracy for the top earnings quintile when volatility is added as a regressor is superior to the model including only lagged earnings. The findings are consistent with the over-investment hypothesis and the view that the earnings of the most volatile firms tend to mean-revert more rapidly.

Additional information

Sponsorship: Nikola Petrovic gratefully acknowledges the financial support provided by the UK Overseas Research Studentship Award Scheme and the School of Accounting, Finance and Management at the University of Essex for a PhD scholarship

Documents

  • Preprint

    Preprint (usually an early version) , 867 KB, PDF-document

Research areas

  • earnings persistence, over-investment, under-investment, earnings volatility

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  1. Does volatility improve UK earnings forecasts?

    Research output: Other contribution