The Level and Persistence of Growth Rates

Louis K.C. Chan, Jason Karceski and Josef Lakonishok

No 8282, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Expected long-term earnings growth rates are crucial inputs to valuation models and for cost of capital estimates. We analyze historical long-term growth rates across a broad cross-section of stocks using several operating performance indicators. We test whether growth persists, and whether it is forecastable. Cases of very high growth have occurred, but are relatively rare. There is scant persistence in growth beyond chance, and limited ability to identify firms with high future long-term growth. IBES forecasts are too optimistic, and have low predictive power for long-term growth. Regressions using a variety of predictors confirm the low predictability in growth. Valuations that assume persistently high growth over prolonged periods rest on shaky foundations.

JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2001-05
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Chan, Louis K. C., Jason Karceski, and Josef Lakonishok. "The Level and Persistence of Growth Rates." Journal of Finance 58, 2 (April 2003): 643-84.

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