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Article: Earnings Extrapolation and Predictable Stock Market Returns

TitleEarnings Extrapolation and Predictable Stock Market Returns
Authors
Guo, Hongye
Issue Date1-Jun-2025
PublisherOxford University Press
Citation
The Review of Financial Studies, 2025, v. 38, n. 6, p. 1730-1782 How to Cite?
DOI: http://dx.doi.org/10.1093/rfs/hhaf020
Abstract

The U.S. stock market's return during the first month of a quarter correlates strongly with returns in future months, but the correlation is negative if the future month is the first month of a quarter, and positive if it isn't. These correlations offset, consistent with the well-known near-zero unconditional autocorrelation, yet they are pervasive, present across industries and countries. The pattern accords with a model in which investors extrapolate announced earnings to predict future earnings, not recognizing that earnings in the first month of a quarter are discretely less predictable than in prior months. Survey data support the model.


Persistent Identifierhttp://hdl.handle.net/10722/356538
ISSN
0893-9454
2023 Impact Factor: 6.8
2023 SCImago Journal Rankings: 17.654
ISI Accession Number ID
WOS:001471786600001

 

DC FieldValueLanguage
dc.contributor.authorGuo, Hongye-
dc.date.accessioned2025-06-04T00:40:19Z-
dc.date.available2025-06-04T00:40:19Z-
dc.date.issued2025-06-01-
dc.identifier.citationThe Review of Financial Studies, 2025, v. 38, n. 6, p. 1730-1782-
dc.identifier.issn0893-9454-
dc.identifier.urihttp://hdl.handle.net/10722/356538-
dc.description.abstract<p>The U.S. stock market's return during the first month of a quarter correlates strongly with returns in future months, but the correlation is negative if the future month is the first month of a quarter, and positive if it isn't. These correlations offset, consistent with the well-known near-zero unconditional autocorrelation, yet they are pervasive, present across industries and countries. The pattern accords with a model in which investors extrapolate announced earnings to predict future earnings, not recognizing that earnings in the first month of a quarter are discretely less predictable than in prior months. Survey data support the model.</p>-
dc.languageeng-
dc.publisherOxford University Press-
dc.relation.ispartofThe Review of Financial Studies-
dc.rightsThis work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.-
dc.titleEarnings Extrapolation and Predictable Stock Market Returns-
dc.typeArticle-
dc.identifier.doi10.1093/rfs/hhaf020-
dc.identifier.scopuseid_2-s2.0-105005529527-
dc.identifier.volume38-
dc.identifier.issue6-
dc.identifier.spage1730-
dc.identifier.epage1782-
dc.identifier.eissn1465-7368-
dc.identifier.isiWOS:001471786600001-
dc.identifier.issnl0893-9454-

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