The Empirical Relationship Between Stock Prices and Long-Term Earnings

Joe Callaghan; Austin Murphy; Mohinder Parkash; Hong Qian

doi:10.3905/JOI.2009.18.3.049

Article

The Empirical Relationship Between Stock Prices and Long-Term Earnings

Joe Callaghan, Austin Murphy, Mohinder Parkash and Hong Qian

The Journal of Investing Fall 2009, 18 (3) 49-52; DOI: https://doi.org/10.3905/JOI.2009.18.3.049

Joe Callaghan

is a professor of accounting in the department of accounting and finance, Oakland University in Rochester, MI.

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For correspondence: callagha@oakland.edu

Austin Murphy

is a professor of finance in the department of accounting and finance, Oakland University in Rochester, MI.

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For correspondence: jamurphy@oakland.edu

Mohinder Parkash

is an associate professor of accounting in the department of accounting and finance, Oakland University in Rochester, MI.

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For correspondence: parkash@oakland.edu

Hong Qian

is an assistant professor of finance in the department of accounting and finance, Oakland University in Rochester, MI.

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For correspondence: qian2@oakland.edu

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Abstract

This article shows stock prices to be related to be a function of long-term earnings forecasts, as is consistent with financial theory. Stock prices reflect not only the average of the IBES long-term earnings predictions but also some superior forecasting power beyond that aggregated average prediction.

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The Journal of Investing

Vol. 18, Issue 3

Fall 2009

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The Empirical Relationship Between Stock Prices and Long-Term Earnings