Sticky Expectations and the Profitability Anomaly
Name
SSRN-id2742730.pdf
Description
Accepted version
Size
583.49 KB
Format
Adobe PDF
Checksum (MD5)
602ef1d1fda2efdb3b8e49e5e989ed19
Author(s)
BOUCHAUD, JEAN-PHILIPPE
KRÜGER, PHILIPP
LANDIER, AUGUSTIN
THESMAR, DAVID
Date Issued
2019
Journal
The Journal of Finance
Publisher
Wiley
Version
Author's final manuscript
Abstract
© 2018 the American Finance Association We propose a theory of the “profitability” anomaly. In our model, investors forecast future profits using a signal and sticky belief dynamics. In this model, past profits forecast future returns (the profitability anomaly). Using analyst forecast data, we measure expectation stickiness at the firm level and find strong support for three additional model predictions: (1) analysts are on average too pessimistic regarding the future profits of high-profit firms, (2) the profitability anomaly is stronger for stocks that are followed by stickier analysts, and (3) the profitability anomaly is stronger for stocks with more persistent profits.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1111/JOFI.12734
