The prediction of earnings movements using accounting data: An update and extension of Ou and Penman

Ron Bird, R Gerlach and Hall Ad ()
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Hall Ad: School of Finance and Economics, University of Technology

Journal of Asset Management, 2001, vol. 2, issue 2, No 6, 180-195

Abstract: Abstract The greater interest apparent in the recent academic literature in the impact of corporate earnings information on the valuation of shares has prompted an updating of the seminal work of Ou and Penman (1989) on the role that accounting information can play in predicting future movements in earnings relative to expectations. The Ou and Penman analysis has also been extended by considering two measures of expectations; by covering a more recent time period; by encompassing the UK and Australian markets in addition to the US market; and by applying a new methodology for developing the forecasting models. The study found that a model based on accounting information retains merit as a means of forecasting movements in trend-adjusted earnings, but that these forecasts no longer provide the basis for a profitable investment strategy. The models used to forecast earnings surprise gave mixed results, but nonetheless, some of the resulting investment strategies were consistently profitable.

Keywords: accounting information; earnings; analysts' forecast; investment strategy (search for similar items in EconPapers)
Date: 2001
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DOI: 10.1057/palgrave.jam.2240043

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