What question did this study set out to answer?

To assess how time-series models relate to the security market's expectations of quarterly earnings.

March 18, 2026

The Relationship Between Time-Series Models and the Security Market's Expectation of Quarterly Earnings.

Key Points

To assess how time-series models relate to the security market's expectations of quarterly earnings.
Analyzed five quarterly earnings time-series models using data from 240 NYSE firms.
Utilized a holdout period from 1975-1977 for validation.
Evaluated models based on prediction accuracy and market association tests.
The Brown-Rozeff model showed the highest predictive ability.
Significant correlation between unexpected earnings changes and abnormal returns was found.
Only about 15% of the information was conveyed by earnings announcements to the market.

Abstract

Abstract ABSTRACT: The relationship between a set of five quarterly earnings time-series models and the security market's expectation of quarterly earnings was assessed using two evaluative criteria: 1) prediction of quarterly earnings numbers and 2) security market association testing. A relatively large sample of 240 NYSE firms was analyzed using an extensive time-series data base over 1962-1974 and a holdout test period from 1975-1977. Overall, the Brown-Rozeff model dominated both the predictive ability tests and the cumulative average residual analysis. These results are consistent with the security market adjusting for the presence of seasonality in the quarterly EPS data. Although a significant contemporaneous association between unexpected earnings changes and abnormal security returns was revealed, the informational content of the earnings numbers conveyed only approximately 15 percent of the total information available to the market as of the earnings announcement date.

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