An Empirical Analysis Of The Value Line Earnings Predictability Index

Abstract

The earnings of some companies are easier to analyze and predict than others. Because earnings predictability affects stock prices, investors and researchers have relied on a variety of indexes, such as the Value Line Earnings Predictability Index (VLPI), to gauge ex ante differences in predictability. This study empirically analyzes the performance of VLPI versus several other indexes. Rank correlations with subsequent earnings forecast errors are used to measure index performance. Interestingly, the results indicate that VLPI performs as well as a corresponding index based on past forecasting accuracy.