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Does volatility improve UK earnings forecasts?

Petrovic, N and Manson, S and Coakley, J (2009) 'Does volatility improve UK earnings forecasts?' Journal of Business Finance and Accounting, 36 (9-10). 1148 - 1179. ISSN 0306-686X

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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 improves when volatility is added as a regressor to a 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. © 2009 Blackwell Publishing Ltd.

Item Type: Article
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Jim Jamieson
Date Deposited: 17 Dec 2012 15:35
Last Modified: 23 Jan 2019 02:15

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