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Long-term growth forecasts and stock recommendation profitability

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  • Andreas Simon
  • John Nowland

Abstract

We investigate whether analysts' long-term growth (LTG) forecasts are a signal of analyst effort to better understand the future prospects of firms, which is reflected in the long-term profitability of their stock recommendations. We develop a one-year-ahead LTG forecast likelihood score and execute a trading strategy that generates average abnormal returns of 2.9% per annum over our sample period (1995-2005). Furthermore, in out-of-sample testing without portfolio rebalancing during the 2006-2011 period, our trading strategy earns abnormal returns of 2.5% per annum. In summary, this study illustrates previously undocumented long-term benefits accruing to investors from the information inherent in analyst LTG forecasts.

Suggested Citation

  • Andreas Simon & John Nowland, 2015. "Long-term growth forecasts and stock recommendation profitability," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 22(2), pages 163-190, June.
    • Handle: RePEc:taf:raaexx:v:22:y:2015:i:2:p:163-190
    DOI: 10.1080/16081625.2014.937561
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    Cited by:

    1. Jincheol Bae & Wonchang Hur & Jaehong Lee & Jaimin Goh, 2017. "Patent Citations and Financial Analysts’ Long-Term Growth Forecasts," Sustainability, MDPI, vol. 9(5), pages 1-15, May.

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