The Variability of Earnings and Non‐Earnings Information and Earnings Prediction

Pervin K. Shroff

Journal of Business Finance & Accounting, 1999, vol. 26, issue 7‐8, 863-882

Abstract: This paper examines the performance of a ‘composite’ model of earnings prediction that integrates current earnings and current price as predictors of next year's earnings. The results show that current earnings (current price) play a key role in predicting future earnings when the ratio of earnings variance to price variance is low (high). The composite model is superior to univariate time‐series models in out‐of‐sample predictive accuracy for the overall sample, and is substantially so for the group of firms with a high ratio of earnings variance to price variance.

Date: 1999
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