Trading based on forecasts of earnings per share. A test of the efficient market hypothesis

  • Schlater J
  • Haugen R
  • Wichern D
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In this paper the semi-strong form of the efficient market hypothesis is tested with a trading rule based on Box-Jenkins forecasts of earnings per share numbers. The quarterly earnings per share series are modeled for a number of firms. The models are updated quarter by quarter and investments are made in the stocks with the largest forecasted growth rates for the next quarter. The risk-adjusted performance of such a strategy is shown to be inconsistant with semi-strong market efficiency. © 1980.

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  • John E. Schlater

  • Robert A. Haugen

  • Dean W. Wichern

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