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To: greg Benfield who wrote (201)	5/30/1998 9:41:00 PM
From: greg Benfield	Respond to of 1020

anyone...anyone...please?

To: greg Benfield who wrote (201)	5/30/1998 9:49:00 PM
From: Jeffrey L. Henken	Read Replies (1) \| Respond to of 1020

Evidence that Prices do not Fully Reflect the Implications of Current Earnings for Future Earnings: An Experimental Markets Approach tcel.com by: MICHAEL CALEGARI and NEIL FARGHER Appearing in: Volume 14, Number 2 - Summer 1997 Abstract.Analysts have been found to underweight the innovation in most recent quarter earnings when forecasting next quarter earnings, and these expectations have been posited as an explanation for post-earnings announcement drift. This study uses an experimental asset market to examine whether similar errors are made by student subjects in forecasting quarterly earnings. We examine two aspects of this behavior: (1) Do subjects underestimate the autocorrection in quarterly earnings when forming earnings expectation? and (2) Are asset prices consistent with subjects underestimating the autocorrection in quarterly earnings? We observe errors in forecasts by subjects which underweight extreme innovations in the most recent quarter earnings by approximately forty percent. The prices in the experimental markets also fail to reflect fully the most recent innovation in quarterly earnings. We are able to predict the sign of the mispricing in 74 percent of the 135 markets from the mean initial earnings predictions of the subjects. These forecast errors observed in this study are consistent with forecast errors observed for analysts, and this consistency suggests that errors in analysts' forecasts may be at least partially attributable to the use of judgmental heuristics. Gee Greg, maybe we don't know. Regards, Jeff