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Expected earnings growth and portfolio performance

  • Ronald W. Best
  • Charles W. Hodges
  • James A. Yoder
Article

Abstract

We form portfolios based on forecasted growth rates in earnings and apply stochastic dominance tests. Low expected-growth rate portfolios dominate high expected-growth rate portfolios. This suggests that the superior return performance of value stocks is not due to omitted risk factors but is a consequence of investors making systematic errors in forming earnings expectations.

Keywords

Earnings growth Stochastic dominance Value stocks 

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Copyright information

© Springer Science + Business Media, LLC 2006

Authors and Affiliations

  • Ronald W. Best
    • 1
  • Charles W. Hodges
    • 1
  • James A. Yoder
    • 2
  1. 1.University of West Georgia
  2. 2.Department of Accounting and FinanceUniversity of West GeorgiaCarrollton

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