Aggregate earnings informativeness and economic shocks: international evidence

Abstract

Our study proposes the usage of aggregate earnings to forecast future GDP growth. Using empirical analyses with global quarterly data, we investigate whether aggregate-level profitability drivers, which are components of aggregate earnings, are relevant for forecasting GDP growth. After confirming that aggregate-level profitability drivers are useful for forecasting future GDP growth worldwide, we show that considering the effects of crises improves the forecast model of GDP growth. In addition, we suggest that predicting GDP growth using aggregate-level profitability drivers is relevant for stock valuation in developed countries, but not in emerging countries.