Predicting changes in earnings

This paper investigates whether the accuracy of models used in accounting research to predict categorical dependent variables (classification) can be improved by using a data analytics approach. This topic is important because accounting research makes extensive use of classification in many different research streams that are likely to benefit from improved accuracy.

72p fugu897 03-07-2019 28 3   Download

We compare the predicted values with actual correlations for the sample firms and investigate the cross-sectional relation between them to assess the extent to which the simple model described in the previous section fits the data. First, we report the average values of the predicted serial-and cross-correlations among earnings changes, operating cash flow changes and accrual changes.

69p bin_pham 06-02-2013 59 3   Download

In this section we develop a simple model of operating cash flows and the accounting process by which operating cash flow forecasts are incorporated into accounting earnings. The model explains why operating cash flow changes have negative serial correlation and how earnings incorporate the negative serial correlation to become a better forecast of future operating cash flows than current operating cash flows. The model also explains other time series properties of earnings, operating cash flows and accruals.

30p bin_pham 06-02-2013 65 4   Download

As for the effect of macroeconomic variables such as money supply and interest rate on stock prices, the efficient market hypothesis suggests that competition among the profit-maximizing investors in an efficient market will ensure that all the relevant information currently known about changes in macroeconomic variables are fully reflected in current stock prices, so that investors will not be able to earn abnormal profit through prediction of the future stock market movements (Chong and Koh 2003).

35p bocapchetnguoi 05-12-2012 59 4   Download