Earnings expectations in the COVID crisis

That is a new paper by Augustin Landier and David Thesmar, here is the abstract:

We analyze firm-level analyst forecasts during the COVID crisis. First, we describe expectations dynamics about future corporate earnings. Downward revisions have been sharp, especially for 2020 and 2021, but much less drastic than the lower bound estimated by Koijen et al. (2020). Analysts’ consensus forecast does not exhibit evidence of over-reaction: Forecasts over 2020 earnings have slowly decreased by 10.2% over the course of March and April 2020 before stabilizing. Long-run forecasts, as well as expected “Long-Term Growth” have reacted less than short-run forecasts, and feature less disagreement. However, even the 2024 forecasts are revised down. Second, we ask how much forecast revisions explain market dynamics. Without change in discount rates, mean forecast-implied cumulative returns from mid-February to mid-April should be around -9%, while they were actually -20%. The difference between forecast-implied returns and actual returns implies a rise in the average discount rate of about 1\%. This increase is decomposed into three factors: increased risk premium (+1\%)), increased leverage (+1\%) and interest rate reduction (-1\%). In other words, analyst forecast revisions explain most of the downward revision in equity values.

This is perhaps the best stock market analysis I have seen so far…?


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