Sticky Expectations and the Profitability Anomaly
Augustin Landier and
Authors registered in the RePEc Author Service: Philipp Krueger
Journal of Finance, 2019, vol. 74, issue 2, 639-674
We propose a theory of the “profitability” anomaly. In our model, investors forecast future profits using a signal and sticky belief dynamics. In this model, past profits forecast future returns (the profitability anomaly). Using analyst forecast data, we measure expectation stickiness at the firm level and find strong support for three additional model predictions: (1) analysts are on average too pessimistic regarding the future profits of high‐profit firms, (2) the profitability anomaly is stronger for stocks that are followed by stickier analysts, and (3) the profitability anomaly is stronger for stocks with more persistent profits.
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Working Paper: Sticky Expectations and the Profitability Anomaly (2017)
Working Paper: Sticky Expectations and the Profitability Anomaly (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:74:y:2019:i:2:p:639-674
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