An exploration of earnings whispers forecasts as predictors of stock returns

Rebecca Abraham (Nova Southeastern University, Fort Lauderdale, Florida, USA)

Journal of Economic Studies

ISSN: 0144-3585

Publication date: 1 December 2005



To test the Miller Price Optimism Model using a new proxy for heterogenous expectations and to examine if high differential stocks behave like glamour stocks and low differential stocks behave like value stocks.


Whisper/analyst forecast differentials were measured for a sample of stocks, combined into portfolios and held for one month. If the Miller model was supported, high differential stocks were expected to have lower portfolio returns than low differential stocks due to the greater divergence between optimistic whisper forecasts and rational analysts consensus forecasts.


High differential quintiles had significantly lower future returns than low differential quintiles supporting the Miller model. High differential stocks resembled glamour stocks while low differential stocks behaved like value stocks.

Research limitations/implications

These results pertain to the ultra‐short time horizon of two months prior to the earnings announcement. Future research should replicate this study for a longer 3‐12 month time horizon.

Practical implications

Ultra short‐term investors should hold glamour stocks and long term investors should hold value stocks. Rising volatility suggests that investors should define the time horizon for holding assets.


It is one of only two studies that directly uses earnings forecasts as a proxy for heterogenous expectations. It adds to the sparse literature on whisper forecasts. It may be used by academicians studying price optimism effects and institutional investors following stock returns during earnings announcements.



Abraham, R. (2005), "An exploration of earnings whispers forecasts as predictors of stock returns", Journal of Economic Studies, Vol. 32 No. 6, pp. 524-539.

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