Analysts’ Multi－period Forecasts and Future Earnings Persistence

[Purpose] The purpose of this study is to investigate whether analyst multi－period forecasts reflect the future earnings persistence information. [Methodology] Our sample period covers from 1993 and 2013. We establish 8,867 final samples from the intersection of the Compustat, CRSP, and I/B/E/S. We test the relationship between the actual future earnings persistence and analysts’ earnings persistence forecasts implied in the multi －period earnings forecasts. Also, we investigate the relationship between the expectation in earings persistence change and future stock returns volatility. Lastly, we regress future abnormal returns on the expectation of change in earnings persistence. [Findings] After estimating analysts’ earnings persistence forecasts embedded in their multi－ period earnings forecasts, we find that the expectation of change in future earnings persistence implied in the multi－period forecasts captures actual change in future earnings persistence. We also find that when analysts anticipate a rise in future earnings persistence, future stock returns increase while future stock returns volatility declines. [Implications] Our findings support the argument that, although analysts’ multi－period forecasts convey information regarding the future earnings persistence variation, investors do not fully understand the implication and respond on a delayed basis.