Forecastability of Earnings Surprises

James G. Bulsiewicz

Abstract


I investigate whether it is possible to profitably trade on predicted earnings surprises, forecasted using the Foster (1977) model. Unlike the extant literature, which documents a strong positive relation between actual earnings surprises and returns, I find that trading on predicted earnings surprises, generated by the Foster (1977) model, has earned a small negative, but statistically indistinguishable from zero, return. This result highlights the difficulty in forecasting earnings surprises.


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DOI: https://doi.org/10.5296/ijafr.v10i4.17933

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Copyright (c) 2020 James Bulsiewicz

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International Journal of Accounting and Financial Reporting  ISSN 2162-3082

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