PHYSICS 102 Lecture Notes - Lecture 14: Asset Turnover, Systematic Risk, Intangible Asset
Document Summary
Life cycle models and forecasting growth and profitability. Mean reversion in profitability and growth is a well-documented phenomenon: however, comparatively less is known about the level of analysis that best captures mean reversion. In this study, we find that analyzing firms by life cycle stage improves the out-of-sample accuracy of profitability and growth forecasts over analyzing firms pooled across the economy and analyzing firms by industry. The improved accuracy is robust to both short-term and long-term forecasts. We also find that the improvement in accuracy of forecasts from life cycles analysis is greatest for firms in the introduction and decline stages and for firms with greater uncertainty. Finally, we examine market participants" use of life cycle information in forming expectations. We find inefficient use of life cycle information in analysts" forecasts, but not in management forecasts. We also find that life cycle forecasts are associated with year-ahead abnormal stock returns.
