Does the Stock Market Fully Appreciate the Implications of Leading Indicators for Future Earnings? Evidence from Order Backlog

Shivaram Rajgopal (), Terry Shevlin () and Mohan Venkatachalam ()
Additional contact information
Shivaram Rajgopal: University of Washington
Terry Shevlin: University of Washington
Mohan Venkatachalam: Duke University

Review of Accounting Studies, 2003, vol. 8, issue 4, No 3, 492 pages

Abstract: Abstract Although leading indicators are becoming increasingly important for equity valuation, disclosures of such indicators suffer from the absence of GAAP related guidance on content and presentation. We explicitly examine (i) whether one leading indicator—order backlog—predicts future earnings, and (ii) whether market participants correctly incorporate such predictive ability in determining share prices. We find that the stock market overweights the contribution of order backlog in predicting future earnings, and a hedge strategy that exploits such overweighting generates significant future abnormal returns. However, such mispricing is not due to analysts' inability to incorporate order backlog into their earnings forecasts.

Keywords: leading indicator; backlog; mispricing; market efficiency; analyst forecasts (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1023/A:1027364031775 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:reaccs:v:8:y:2003:i:4:d:10.1023_a:1027364031775

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1023/A:1027364031775

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().