Journal ArticleDOI
Is Our Industry Intellectually Lazy
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TLDR
In this article, the editor raises questions about and calls for investigation of the following practices: Why does our industry forecast aggregate corporate earnings growth rates that are faster than sustainable GDP growth? Why do we not question pension return assumptions? Why accept rising pension return expectations in a rising market? Why allow actuarial or accounting assumptions to drive investment practice? Why readily accept return forecasts based on extrapolating the past? Why not “normalize” return assumption? Why is the topic of expensing management stock options controversial? When various “earnings” figures diverge,Abstract:
Part of the mission of the Financial Analysts Journal is to stimulate creative thinking about financial analysis, including investment valuation, risk management, fiduciary issues, and asset allocation. As part of that mission, the editor raises questions about and calls for investigation of the following practices: Why does our industry forecast aggregate corporate earnings growth rates that are faster than sustainable GDP growth? Why do we not question pension return assumptions? Why accept rising pension return expectations in a rising market? Why allow actuarial or accounting assumptions to drive investment practice? Why readily accept return forecasts based on extrapolating the past? Why not “normalize” return assumptions? Why is the topic of expensing management stock options controversial? When various “earnings” figures diverge, why not ask why? Why is a negative equity risk premium considered shocking? Why is our industry often surprised and distrustful when empirical tests fail to support accept...read more
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Institutional investors and the language of finance: the global metrics of market performance
TL;DR: In this paper, the authors develop these observations paying particular regard to the interests of institutional investors as well as the burgeoning market for global metrics not just national reporting standards, and develop a global reporting standard for the stock market.
The Impact of the Equity Risk Premium and Population Aging on The Canadian Retirement Savings System
TL;DR: In this article, a review of the current research with respect to the equity risk premium is presented, combined with data regarding projected increases in mortality, and applies this information to the Canadian retirement income system.
The Accuracy of Analysts' Long-Term Earnings Per Share Growth Rate Forecasts
TL;DR: In this article, the authors examined the accuracy of analyst long-term and one-year earnings per share growth rate forecasts over the last 20 years and found that analysts' earnings growth rate estimates are consistently overly-optimistic and are about two times the level of GDP growth.
Examining the Impacts of Regulation on Long-term Earnings Growth Forecasts
TL;DR: In this article, the authors analyzed the accuracy and bias of sell-side equity analyst's long-term earnings per share growth forecasts and found no significant evidence that regulatory reforms have been helpful in improving the accuracy or continued upward bias.
References
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Journal ArticleDOI
Surprise! Higher Dividends = Higher Earnings Growth
TL;DR: In this article, the authors investigate whether dividend policy, as observed in the payout ratio of the U.S. equity market portfolio, forecasts future aggregate earnings growth, and they find that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratio are low.
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What Risk Premium Is “Normal”?
TL;DR: In this paper, the authors present an estimate of the objective forward-looking U.S. equity risk premium relative to bonds through history, specifically since 1802, and demonstrate that the long-term forwardlooking risk premium is nowhere near the level of the past; today, it may well be near zero, perhaps even negative.
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Long-Run Stock Returns: Participating in the Real Economy
G IbbotsonRoger,ChenPeng +1 more
TL;DR: In this article, the authors decomposed the 1926-2000 historical equity returns into supply factors, including inflation, earnings, dividends, P/E, the dividend-payout ratio, book value, return on equity, and GDP per capita.
Journal ArticleDOI
Earnings Growth: The Two Percent Dilution
TL;DR: The authors showed that during the 20th century, stock prices and dividends were 2 percent less than underlying macroeconomic growth, and that the role of entrepreneurial capitalism, the creation of new enterprises, is a key driver of GDP growth.