The Return-Earnings Relation When Analyst Forecasts Are Used as a Proxy for Investor Expectations

In this paper we model return-earnings regressions in a setting in which analysts' forecasts are used to proxy for investors' expectations. We show how disparites between investors' and analysts' information sets could affect the regression coefficients and the R2. Our findings provide new and untested implications and yield insights into recent return-earnings evidence in the empirical literature.