Consecutive earnings forecast revisions and their relationship to stock returns

Abstract

This paper tests whether consecutive forecast revisions of annual EPS have a reinforcing factor effect built in when the consecutive revision is in the same direction. If in fact there is a reinforcing factor effect present, then there should be a relationship between the consecutive monthly revisions and monthly stock returns in the second consecutive revision month. The analysis used 63 New Zealand and 226 Australian companies for the period from June 1989 to May 1998. The analysis indicated that there is no indication of this reinforcing factor effect and only a very small amount (1%) of the return variation can actually be explained by the consecutive forecast revisions.