An analysis of the accuracy of long-term earnings predictions

Kenneth S Lorek, G. Lee Willinger

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

This paper provides information on the long-term predictive ability of annual earnings numbers. We obtained a sample of 486 calendar, year-end firms that had complete quarterly earnings-per-share (eps) before extraordinary items available from 1978 to 1998. Firm-specific, quarterly, autoregressive-integrated-moving-average (ARIMA) time-series models were used to generate one through five year-ahead annual eps predictions across the 1994-1998 holdout period. Analysis of mean absolute percentage errors indicates: (1) firm-specific ARIMA models outperform so-called, common-structure, "primier" ARIMA models, (2) forecast errors from the firm-specific ARIMA time-series models ranged from 0.358 to 0.547 for one through five year-ahead annual eps predictions, (3) long-term earnings forecast accuracy is linked to firm size and earnings persistence, and (4) further research is needed to develop more powerful, long-term earnings prediction models suitable for use in conjunction with the abnormal earnings valuation model.

Original languageEnglish (US)
Title of host publicationAdvances in Accounting
Pages161-175
Number of pages15
Volume19
StatePublished - 2002
Externally publishedYes

Publication series

NameAdvances in Accounting
Volume19
ISSN (Print)08826110

Fingerprint

Moving average
Integrated
Prediction
Earnings per share
Time series models
Calendar
Valuation model
Abnormal earnings
Earnings persistence
Forecast accuracy
Earnings forecasts
Forecast error
Firm size
Predictive ability
Prediction model
Extraordinary items

ASJC Scopus subject areas

  • Accounting

Cite this

Lorek, K. S., & Lee Willinger, G. (2002). An analysis of the accuracy of long-term earnings predictions. In Advances in Accounting (Vol. 19, pp. 161-175). (Advances in Accounting; Vol. 19).

An analysis of the accuracy of long-term earnings predictions. / Lorek, Kenneth S; Lee Willinger, G.

Advances in Accounting. Vol. 19 2002. p. 161-175 (Advances in Accounting; Vol. 19).

Research output: Chapter in Book/Report/Conference proceedingChapter

Lorek, KS & Lee Willinger, G 2002, An analysis of the accuracy of long-term earnings predictions. in Advances in Accounting. vol. 19, Advances in Accounting, vol. 19, pp. 161-175.
Lorek KS, Lee Willinger G. An analysis of the accuracy of long-term earnings predictions. In Advances in Accounting. Vol. 19. 2002. p. 161-175. (Advances in Accounting).
Lorek, Kenneth S ; Lee Willinger, G. / An analysis of the accuracy of long-term earnings predictions. Advances in Accounting. Vol. 19 2002. pp. 161-175 (Advances in Accounting).
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