PYECPitjantjatjara/Yankunytjatjara Education Committee (Australia)
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[PYEC.sub.R] is PYEC (the prior-year earnings change, previously defined as [E.sub.t-1] - [E.sub.t-2]) if PYEC is opposite in sign to the current year earnings change CYEC (defined as [E.sub.t] - [E.sub.t-1]) and zero otherwise.
[PYEC.sub.M_UP] is PYEC for cases of momentum upwards (when PYEC and CYEC have the same sign and are positive) and zero otherwise.
More important, the coefficient on prior-year earnings change (PYEC) is significant and has a value of 0.08 which is similar to Abarbanell and Bernard's result for forecasts made before the first quarter's results.
This difference may be explained by our scaling of the forecast error and PYEC by price.
We partition the sample by PYEC ([E.sub.t-1] - [E.sub.t-2]) - and CYEC ([E.sub.t] - [E.sub.t-1]).
To assess the extent of this bias we also ran Equation (4) again but distinguishing between the two types of reversion, PYEC positive/CYEC negative and PYEC negative/CYEC positive.
The value of the coefficient on [PYEC.sub.M] is 0.5 compared with 0.08 for PYEC reported in Table I.
Analysts exhibit generalized underreaction to PYEC. However, when PYEC is negative, they seem to be especially surprised when earnings decline further.
The qualitative interpretation of our results is similar to that of Easterwood and Nutt, yielding a positive, but insignificant response to prior-year earnings change for normal values of PYEC and a significant negative shift for high values.
This result shows that analysts overreact to high values of PYEC and underreact in other cases.