Earnings Expectations during the COVID-19 Crisis* | Zendy

Augustin Landier | Zendy; David Thesmar | Zendy

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Earnings Expectations during the COVID-19 Crisis*

Author(s) -

Augustin Landier,

David Thesmar

Publication year - 2020

Publication title -

the review of asset pricing studies

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.356

H-Index - 19

eISSN - 2045-9939

pISSN - 2045-9920

DOI - 10.1093/rapstu/raaa016

Subject(s) - earnings , leverage (statistics) , economics , covid-19 , equity (law) , econometrics , monetary economics , asset (computer security) , financial economics , actuarial science , accounting , statistics , mathematics , computer science , medicine , disease , pathology , political science , law , computer security , infectious disease (medical specialty)

We analyze the dynamics of earnings forecasts and discount rates implicit in valuations during the COVID-19 crisis. Forecasts over 2020 earnings have been progressively reduced by 16%. Longer-run forecasts have reacted much less. We estimate an implicit discount rate going from 10% in mid-February to 13% at the end of March and reverting to its initial level in mid-May. Over this period, the unlevered asset risk premium is unchanged, as the risk-free rate drop is compensated by the effect of increased leverage. Hence, analysts’ forecast revisions explain all of the decrease in equity values between January 2020 and mid-May 2020.

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