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

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Abstract

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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Schlater, J. E., Haugen, R. A., & Wichern, D. W. (1980). Trading based on forecasts of earnings per share. A test of the efficient market hypothesis. Journal of Banking and Finance, 4(2), 197–211. https://doi.org/10.1016/0378-4266(80)90007-2

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