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The Accounting Review Vol. 83 No. 4 2008

Extracting Forward-Looking Information from Security Prices: A New Approach

Dan Weiss1; P. A. Naik2; Chih‐Ling Tsai2

1 Tel Aviv University · 2 University of California, Davis

Abstract

This paper proposes a new index to extract forward-looking information from security prices and infer market participants’ expectations of future earnings. The index, called market-adapted earnings (MAE), utilizes stock returns and fundamental accounting signals to estimate market expectations of future earnings at the firm level. MAE outperforms time-series models (e.g., random-walk) in predicting future earnings. Results demonstrate the usefulness of MAE for firms that have no analyst following.

DOI
10.2308/accr.2008.83.4.1101
Volume
83
Issue
4
Pages
1101-1124
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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