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Analysis investigates trading activity changes in response to varying earnings forecasts, indicating implications for investor behavior.
ABSTRACT: The purpose of this study is to investigate whether the information content of executive earnings forecasts, as measured by changes in trading activity, differed depending on (1) the forecast horizon and (2) the magnitude of the predicted earnings change. The results of the study indicate that the information content of shorter term and longer term forecasts was virtually the same. With respect to the magnitude of the predicted earnings change, the results indicate that predictions of relatively large changes in earnings (greater than 40 percent) were associated with large changes in trading activity. However, no statistically significant relation between predicted earnings change and changes in trading activity was observed.
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Nichols et al. (1979) studied this question.
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