Consensus Expectations and International Equity Returns

Numerous studies of U.S. markets have shown that stock selection models have been able to isolate securities that earn returns above those predicted by a simple market model. Models examining the relation between analyst expectations and returns have been particularly useful. Unexpected earnings, changes in analysts' earnings-per-share forecasts, the number of analysts revising their forecasts--all these measures have been found to be useful in predicting abnormal returns in U.S. equity markets. At least two of these measures--changes in analysts' EPS forecasts and the number of analysts changing their forecasts--are also related to abnormal returns in several international markets.