Abstract
ABSTRACT We examine the relationship between the long-run macroeconomic outlook and four-quarter-ahead quarterly earnings forecasts and find that the four-quarter-ahead quarterly earnings forecasts are more optimistically biased in periods when the four-quarter-ahead quarterly macroeconomic forecasts are optimistically biased as well. This relationship is stronger when forecasts are for periods that turn out to be recessionary, which is attributable to all forecasters’ inability to predict recessions. Collectively, our results provide a non-opportunistic rationale for the optimistic bias in long-term quarterly earnings forecasts.
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