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Adjusting for earnings volatility in earnings forecast models
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
2014 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

Previous research provides evidence for the negative relation between earnings volatility and earnings forecasting. This paper examines if earnings forecast models can adjust for firms’ earnings volatility and improves the forecasts by choosing a specific estimation method and a specific forecast model. The sample is divided into quartiles based on the firms’ earnings volatility, to examine if the choice of estimation method, the full sample (FS) or the first quartile (Q1) method, and the choice of forecast model, the ones by Hou et al. (2012) and Clubb and Wu (2014), matter depending on the firms’ degree of earnings volatility. The forecasts on US firms are compared based on bias and accuracy over the period 2000-2010. The results confirm the negative relation between earnings volatility and earnings forecasting. Furthermore, the choice of estimation method proves to be a way to account for earnings volatility, where the FS method shows to give better forecasts for the highest volatility firms while the Q1 method is to prefer for the lower volatility firms. The choice of model appears to not depend on earnings volatility except for the model by Clubb and Wu (2014) that works better for the lower volatility firms when using the Q1 method.

Place, publisher, year, edition, pages
2014. , 30 p.
Keyword [en]
Earnings volatility, earnings forecast model, cross-sectional model, forecasting, earnings prediction
National Category
Business Administration
Identifiers
URN: urn:nbn:se:uu:diva-226880OAI: oai:DiVA.org:uu-226880DiVA: diva2:727553
Subject / course
Business Studies
Educational program
Bachelor Programme in Business and Economics
Supervisors
Available from: 2014-06-23 Created: 2014-06-22 Last updated: 2014-06-23Bibliographically approved

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf