Abstract
Since the early 1980s, earnings forecasting research has become much more closely aligned with capital markets research. Capital markets research requires a proxy for the (unobservable) market earnings expectation and earnings forecasting research has provided such proxy measures. Questions considered in this paper include: (1) if annual earnings follow a random walk or an IMA (1,1) model, does this mean that earnings changes cannot be predicted? (2) Do stock prices act as if quarterly earnings follow a seasonal random walk with drift process? (3) Is the predictive model which is best on the forecast accuracy dimension also best on the market association dimension? (4) How do analysts formulate their earnings expectations? (5) What is the role of earnings forecasting in ‘earnings response coefficient’ and ‘post-earnings announcement drift’ studies? (6) What is the likely role of earnings forecasting research in future capital market studies?
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