Sticky Expectations and the Profi tability Anomaly

David Thesmar, Jean-Philippe Bouchaud, Philipp Krueger and Augustin Landier

No 12528, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose a theory of one of the most economically signifi cant stock market anomalies, i.e. the "pro fitability" anomaly. In our model, investors forecast future profi ts using a signal and sticky belief dynamics. In this model, past profi ts forecast future returns (the pro fitability anomaly). Using analyst forecast data, we measure expectation stickiness at the fi rm level and find strong support for three additional predictions of the model: (1) analysts are on average too pessimistic regarding the future pro fits of high pro t rms, (2) the pro fitability anomaly is stronger for stocks which are followed by stickier analysts, and (3) it is also stronger for stocks with more persistent pro fits.

Keywords: Sticky expectations; Profitability anomaly (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-mst
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Related works:
Journal Article: Sticky Expectations and the Profitability Anomaly (2019)
Working Paper: Sticky Expectations and the Profitability Anomaly (2016)
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