Coakley, Jerry

Manson, Stuart

Petrovic, N

English

We investigate the relation between UK accounting earnings volatility and the level of future earnings using a unique sample comprising some 10,480 firm-year observations for 1,481 non-financial firms over the 1985-2003 period. The findings confirm the in-sample result of an inverse volatility-earnings relation only for the 1998-2003 sub-period and for the most profitable firms. The out-of-sample forecast accuracy for the top earnings quintile when volatility is added as a regressor is superior to the model including only lagged earnings. The findings are consistent with the over-investment hypothesis and the view that the earnings of the most volatile firms tend to mean-revert more rapidly

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Does volatility improve UK earnings forecasts?

We investigate the relation between UK accounting earnings volatility and the level of future earnings in a risk management framework. Our unique sample comprises some 11,107 firm-year observations for 1,548 non-financial firms over the 1980-2003 period. The findings confirm the established in-sample result of an inverse volatility-earnings relation. This is more pronounced as the current level of earnings and the firm's growth opportunities increase. However, we find that earnings are mainly explained by lagged earnings and there is no improvement in out-of-sample forecast accuracy when volatility is added as a regressor.We investigate the relation between UK accounting earnings volatility and the level of future earnings in a risk management framework. Our unique sample comprises some 11,107 firm-year observations for 1,548 non-financial firms over the 1980-2003 period. The findings confirm the established in-sample result of an inverse volatility-earnings relation. This is more pronounced as the current level of earnings and the firm's growth opportunities increase. However, we find that earnings are mainly explained by lagged earnings and there is no improvement in out-of-sample forecast accuracy when volatility is added as a regressor

Manson, S

Coakley, J

https://research-information.bris.ac.uk/files/3006567/Petrovic&Manson&Coakley07 - Does volatility improve UK earnings forecasts.pdf

Does volatility improve UK earnings forecasts?

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