Does volatility improve UK earnings forecasts?

N Petrovic, Stuart Manson, Jerry Coakley

Research output: Working paperWorking paper and Preprints

965 Downloads (Pure)

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.
Original languageEnglish
Publication statusPublished - Aug 2007

Bibliographical note

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

Keywords

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

Fingerprint Dive into the research topics of 'Does volatility improve UK earnings forecasts?'. Together they form a unique fingerprint.

  • Cite this