Discussion of “How well do investors understand loss persistence?”
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Li (Rev Acc Stud, 2011) proposes a quarterly earnings prediction model for loss generating firms, shows that it produces better specified future earnings estimates relative to naïve quarterly forecast models, and that it can be used to form a trading strategy that produces economically significant annual hedge returns. I discuss alternative perspectives on Li’s empirical results and suggest directions for future research.
KeywordsEarnings forecasts Return anomalies Loss persistence
JEL classificationG24 G29 M41
I thank Jon Lewellen for helpful comments.