Earnings Expectations during the COVID-19 Crisis
Name
SSRN-id3587394.pdf
Description
Submitted version
Size
757.25 KB
Format
Adobe PDF
Checksum (MD5)
58015a9d14ec7814d145dfb53d6542bf
Author(s)
Landier, Augustin
Thesmar, David Jean Joseph
Date Issued
September 2020
Journal
Review of Asset Pricing Studies
Publisher
Oxford University Press (OUP)
Citation
Landier, Augustin and David Thesmar. "Earnings Expectations during the COVID-19 Crisis." The Review of Asset Pricing Studies 10, 4 (September 2020): 598–617. © 2020 The Author(s)
Version
Original manuscript
Abstract
We analyze the dynamics of earnings forecasts and discount rates implicit in valuations during the COVID-19 crisis. Forecasts over 2020 earnings have been progressively reduced by 16%. Longer-run forecasts have reacted much less. We estimate an implicit discount rate going from 8.5% in mid-February to 11% at the end of March and reverting to its initial level in mid-May. Over the period, the unlevered asset risk premium increases by 50bp, the leverage effect also increases by 50bp, while the risk free rate decreases by 100bp. Hence, analysts' forecast revisions explain all of the decrease in equity values between January 2020 and mid-May 2020. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
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/10.1093/rapstu/raaa016
