Does the Stock Market Fully Appreciate the Implications of Leading Indicators for Future Earnings?: Evidence From Order Backlog
- Topics:
- GAAP,
- GAAP and GAAS
- Tags:
- Finance,
- Financial Accounting,
- GAAP,
- Indicator,
- Investment,
- Stock,
- Stock Market
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Overview: Although leading indicators are becoming increasingly important for equity valuation, disclosures of such indicators suffer from the absence of GAAP related guidance on content and presentation. One explicitly examines; whether one leading indicator order backlog predicts future earnings, and whether market participants correctly incorporate such predictive ability in determining share prices. This paper finds that the stock market over weights the contribution of order backlog in predicting future earnings, and a hedge strategy that exploits such overweighting generates significant future abnormal returns.
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Format: PDF | Size: 214KB | Date: Oct 2003 | Pages: 32
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