Aharon R. Ofer, Investors' Expectations of Earnings Growth, Their Accuracy and Effects on the Structure of Realized Rates of Return, The Journal of Finance, Vol. 30, No. 2, Papers and Proceedings of the Thirty-Third Annual Meeting of the American Finance Association, San Francisco, California, December 28-30, 1974 (May, 1975), pp. 509-523

This paper documents a relationship between announcements of unexpected changes in financial policy and unexpected changes in performance of the firm. Using a new methodology that combines analysis of stock price movements and earnings forecast data, the authors provide evidence that analysts revise their earnings forecasts following the announcement of an unexpected dividend change by an amount positively related to the size of the unexpected dividend change. They also provide evidence that these revisions are positively related to the change in equity value surrounding the announcement. Further, they find that these revisions are consistent with rationality. Their results therefore provide direct evidence consistent with the hypothesis that unexpected dividend changes signal information about firm performance to market participants.

The authors develop a method of measuring ex ante real interest rates using prices of index and nominal bonds. Employing this method and newly available data, they directly test the Fisher hypothesis that the real rate of interest is independent of inflation expectations. The authors find a negative correlation between ex ante real interest rates and expected inflation. This contradicts the Fisher hypothesis but is consistent with the theories of Robert A. Mundell and James Tobin, Michael R. Darby and Martin Feldstein, and Rene Stulz. The authors also find that nominal interest rates include an inflation risk premium that is positively related to a proxy for inflation uncertainty.

We develop a method of measuring ex-ante real interest rates using prices of index and nominal bonds. Employing this method and newly available data, we directly test the Fisher hypothesis that the real rate of interest is independent of inflation expectations. We find a negative correlation between ex-ante real interest rates and expected inflation. This contradicts the Fisher hypothesis but is consistent with the theories of Mundell and Tobin, Darby and Feldstein, and Stulz. We also find that nominal interest rates include an inflation risk premium that is positively related to a proxy for inflation uncertainty.