Predicting Earnings Growth Using E/P Ratios: Australian Evidence

Dave E. Allen, Henrietta Lisnawati and Martyn Clissold
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Dave E. Allen: School of Finance and Business Economics, Edith Cowan University, Joondalup Campus, Joondalup Drive, Joondalup WA 6027, E†mail: d.allen@cowan.edu.au
Henrietta Lisnawati: P.T. Osaka Indah, Jl. Jembatan Tiga No 36 AA, Jakarta †Utara, Indonesia
Martyn Clissold: Norwich Union, PO Box 4, Surrey Street, Norwich, Norfolk NR1 3NG, England

Australian Journal of Management, 1998, vol. 23, issue 1, 115-127

Abstract: The classic ‘higgledy†piggledy growth’ studies by Little (1962), Rayner and Little (1966), Brealey (1967), and Lintner and Glauber (1967) essentially reported that earnings changes over time appear to be randomly distributed. More recently Fuller, Huberts and Levinson (1992) have undertaken a US study which challenges some of these earlier findings. Their study utilised the earnings†to†price ratio as the market's implicit forecast of future earnings changes. Their results suggested that high E/P stocks tend to have relatively lower earnings changes whilst low E/P stocks tend to have higher earnings changes. This study reworks Fuller, Huberts and Levinson's study on a sample of 207 listed Australian companies for the period 1972–1984. On balance, our results support their findings.

Keywords: E/P RATIOS; FORECASTING EARNINGS CHANGES (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:23:y:1998:i:1:p:115-127

DOI: 10.1177/031289629802300107

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