 Consistency of firms' past financial performance measures and future returnsAbdulaziz M. Alwathainani The British Accounting Review, 2009, vol. 41, issue 3, 184-196 Abstract: In this study, I show that growth consistency in firms' past financial performance measures is useful in predicting future stock returns. Firms consistently ranking in the lowest 30 percent of past financial growth measures have greater rates of returns relative to their inconsistent low-growth firm counterparts. The return differential between these two groups increases uniformly with the length of estimation intervals of past performance data. Firms consistently ranking in the top 30 percent of growth rates earn slightly lower returns than inconsistent high-growth firms. These findings indicate that investors overreact to consistency in financial metrics, but this overreaction is more pronounced and persistent for consistent low-growth firms than that for consistent high-performing firms. Regression analyses reveal that consistency of firms' past financial performance predicts subsequent price movement. This association between past growth consistency and future returns is stronger for consistent low-growth firms relative to consistent high-growth firms. Keywords: Growth consistency; Financial performance measures; Investors' overreaction; Behavioral models (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:41:y:2009:i:3:p:184-196 DOI: 10.1016/j.bar.2009.08.001 Access Statistics for this article The British Accounting Review is currently edited by Nathan Lael Joseph and Alan Lowe More articles in The British Accounting Review from Elsevier |
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