Abstract
Article history: Received January 25, 2015 Received in revised format 28 March 2015 Accepted 2 May 2015 Available online May 3 2015 This paper presents an empirical investigation to study the effects of quality of earnings forecasts in predicting stock returns on 121 selected firms traded on Tehran Stock Exchange over the period 2009-2013. The study investigates the effects of three year means of earnings forecast accuracy on investors’ investment decisions in terms of volume and time horizon, i.e. short term and long term investment sentiment. Using some regression analysis, the study has determined a positive and meaningful relationship between the quality of earnings forecast and investment time horizon. However, the study did not find any meaningful relationship between earnings forecast accuracy and volume of investment. Growing Science Ltd. All rights reserved. 5 © 201
Highlights
One of the primary methods for making investment decisions is to have a good forecast on firms’ performance in terms of future earnings (Stickney et al, 2009)
This paper presents an empirical investigation to study the effects of quality of earnings forecasts in predicting stock returns for 121 selected firms traded on Tehran Stock Exchange (TSE) over the period 2009-2013
The first hypothesis of the survey is associated with relationship of time horizon and earnings accuracy
Summary
One of the primary methods for making investment decisions is to have a good forecast on firms’ performance in terms of future earnings (Stickney et al, 2009). They applied the Heston–Rouwenhorst method to unravel country-, industry-, and firm-specific impacts as a source of variation in financial analysts’ earnings forecast errors They estimated each effect using a dummy variable regression, and decomposed the variance of forecast errors into various effects. Payne (2008) investigated audit firm specialization in settings where managers had incentives to modify earnings to reach analysts’ earnings forecasts Their results indicated that audit firms that had a large market share of clients within a specific industry, and audit companies that received a significant portion of their firm revenues from a particular industry, were related to audited financial statement earnings that increased absolute levels of analysts’ forecast error and were less likely to just meet or beat analysts’ forecasts. Their results indicated that audit firms that had a large market share of clients within a specific industry, and audit companies that received a significant portion of their firm revenues from a particular industry, were related to audited financial statement earnings that increased absolute levels of analysts’ forecast error and were less likely to just meet or beat analysts’ forecasts. Rees and Sivaramakrishnan (2007) investigated the effect of meeting or beating revenue forecasts on the relationship between quarterly returns and earnings forecast errors. Fang (2009) investigated the role of management forecast precision in predicting management forecast error
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