Review of Accounting Studies

, Volume 16, Issue 3, pp 668–678 | Cite as

Discussion of “How well do investors understand loss persistence?”



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.


Earnings forecasts Return anomalies Loss persistence 

JEL classification

G24 G29 M41 



I thank Jon Lewellen for helpful comments.


  1. Balakrishnan, K., Bartov, E., & Faurel, L. (2010). Post profit/loss announcement drift. Journal of Accounting & Economics, 50, 20–41.CrossRefGoogle Scholar
  2. Barber, B. M., & Lyon, J. D. (1996). Detecting abnormal operating performance: The empirical power and specification of test statistics. Journal of Financial Economics, 41, 359–399.CrossRefGoogle Scholar
  3. Brown, L. D., & Rozeff, M. S. (1980). Analysts can forecast accurately! Journal of Portfolio Management, 6, 31–34.CrossRefGoogle Scholar
  4. Collins, D.W., R. S. Pungaliya, & Vijh, A. M. (2010). The confounding effects of firm growth on tests of earnings management. Working paper, The University of Iowa.Google Scholar
  5. Daniel, K., & Titman, S. (2006). Market reaction to tangible and intangible information. Journal of Finance, 61, 1605–1643.CrossRefGoogle Scholar
  6. Diether, K., Malloy, C., & Scherbina, A. (2002). Difference of opinion and the cross section of stock returns. The Journal of Finance, 57, 2113–2141.CrossRefGoogle Scholar
  7. Fama, E., & French, K. (1992). The cross-section of expected stock returns. Journal of Finance, 47, 427–465.CrossRefGoogle Scholar
  8. Fama, E. F., & French, K. R. (2004). New lists: Fundamentals and survival rates. Journal of Financial Economics, 73, 229–269.CrossRefGoogle Scholar
  9. Fama, E. F., & MacBeth, J. D. (1973). Risk, return, and equilibrium: Empirical tests. The Journal of Political Economy, 81(3), 607–636.CrossRefGoogle Scholar
  10. Joos, P., & Plesko, G. (2005). Valuing loss firms. The Accounting Review, 80(3), 847–870.CrossRefGoogle Scholar
  11. Lewellen, J. (2010). Accounting anomalies and fundamental analysis: An alternative view. Journal of Accounting & Economics, 50, 455–466.CrossRefGoogle Scholar
  12. Li, K. K. (2011). How well do investors understand loss persistence? Review of Accounting Studies. Google Scholar
  13. Pastor, L., & Veronesi, P. (2003). Stock valuation and learning about profitability. Journal of Finance, 58, 1749–1790.CrossRefGoogle Scholar
  14. Payne, J. L., & Thomas, W. B. (2003). The implications of using stock-split adjusted I/B/E/S data in empirical research. The Accounting Review, 78(4), 1049–1067.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Dartmouth College–Tuck School of BusinessHanoverUSA

Personalised recommendations