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Predicting Earnings Growth using E/P Ratios: Australian Evidence
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Dave E. Allen, Henrietta Lisnawati and Martyn Clissold
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Abstract
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The classic 'higgledy piggledy growth' studies by Little (1962), Rayner and Little
(1966), Brealey (1967), and Lintner and Glauber (1967) essentially reported that
earnings changes over time appear to be randomly distributed. More recently Fuller,
Huberts and Levinson (1992) have undertaken a US study which challenges some of these
earlier findings. Their study utilised the earnings-to-price ratio as the market's implicit
forecast of future earnings changes. Their results suggested that high E/P stocks tend
to have relatively lower earnings changes whilst low E/P stocks tend to have higher
earnings changes.
This study reworks Fuller, Huberts and Levinson's study on a sample of 207 listed
Australian companies for the period 1972-1984. On balance, our results support
their findings.
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Download this article.
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Keywords
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E/P RATIOS; FORECASTING EARNINGS CHANGES.
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Contact Details
Dave E. Allen
School of Finance and Business Economics
Edith Cowan University
Joondalup Campus
Joondalup Drive
Perth WA 6027
E-mail: d.allen@cowan.edu.au
Henrietta Lisnawati
P.T. Osaka Indah
Jl. Jembatan Tiga No 36 AA
Jakarta - Utara
Indonesia
Martyn Clissold
Norwich Union
PO Box 4
Surrey Street
Norwich
Norfolk NR1 3NG
England
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The authors are grateful to Justin Wood, John Roberts, the former Editor, and
the other anonymous reviewers for their patient reviewing. Any remaining
errors remain their responsibility.
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