{
  "title": "The Present Value of Corporate Profits: A Forecasters' Survey Perspective",
  "publication": "IMF Working Papers, January 16, 2019",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2019/01/16/the-present-value-of-corporate-profits-a-forecasters-survey-perspective-46467",
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  "summary": "This paper presents and discusses the estimates of the present value of corporate profits in the United States from 1984 to 2018.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Presents and discusses estimates of the present value of corporate profits in the United States from 1984 to 2018.\n- Uses long-range forecasts of professional forecasters for pre-tax corporate earnings and long-term Treasury note yields from the Blue Chip Economic Indicators survey to value the expected income stream.\n- Argues that the appraised value of corporate earnings can indicate in real time periods where market prices deviate from valuations implied by expected earnings and interest rates.\n- Finds that market participants' forecasts tend to interpret most earnings fluctuations as permanent, underestimating cyclical fluctuations; over-reaction to transitory shocks and changes in long-term outlook leads to swings in valuation that align with swings in observed market prices."
    },
    {
      "heading": "Methodology",
      "content": "- Data sources: Blue Chip Economic Indicators survey forecasts for pre-tax corporate earnings and long-term Treasury note yields.\n- Valuation approach: Present-value computation of expected period-by-period earnings using the forecasts and long-term interest rates."
    },
    {
      "heading": "Key findings and interpretations",
      "content": "- Time coverage: 1984 to 2018.\n- Market participants’ forecasts:\n  - Largely interpret earnings fluctuations as permanent rather than cyclical.\n  - Underestimate cyclical fluctuations in earnings.\n- Valuation dynamics:\n  - Over-reaction to transitory shocks and revisions in the long-term outlook produce swings in the present-value appraisal.\n  - These swings are in line with observed movements in market prices, implying that forecasts contribute to valuation volatility."
    },
    {
      "heading": "Subjects and keywords",
      "content": "- Subjects: Asset prices, Financial institutions, Financial services, Labor, Long term interest rates, National accounts, Prices, Return on investment, Stocks, Wages\n- Keywords: asset prices, corporate earnings, earnings, earnings outlook, equity risk premium, growth expectation, interest rate, Long term interest rates, period-by-period earnings, present value, present-value computation, profit growth, rate of return, Return on investment, risk premium, Stocks, value investor, Wages, WP\n\nIMF Working Paper No. 2019/012 by Michal Andrle.\n\n---\n\n Content in this bundle\n\n- The Present Value of Corporate Profits: A Forecasters’ Survey Perspective, WP/19/12, January 2019\n  - The Present Value of Corporate Profits: A Forecasters’ Survey Perspective, WP/19/12, January 2019 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - The Present Value of Corporate Profits: A Forecasters’ Survey Perspective, WP/19/12, January 2019 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2019/01/16/the-present-value-of-corporate-profits-a-forecasters-survey-perspective-46467"
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    "Authors: Michal Andrle",
    "Published: January 16, 2019",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484390047.001",
    "Presents and discusses estimates of the present value of corporate profits in the United States from 1984 to 2018.",
    "Uses long-range forecasts of professional forecasters for pre-tax corporate earnings and long-term Treasury note yields from the Blue Chip Economic Indicators survey to value the expected income stream.",
    "Argues that the appraised value of corporate earnings can indicate in real time periods where market prices deviate from valuations implied by expected earnings and interest rates.",
    "Finds that market participants' forecasts tend to interpret most earnings fluctuations as permanent, underestimating cyclical fluctuations; over-reaction to transitory shocks and changes in long-term outlook leads to swings in valuation that align with swings in observed market prices.",
    "Data sources: Blue Chip Economic Indicators survey forecasts for pre-tax corporate earnings and long-term Treasury note yields.",
    "Valuation approach: Present-value computation of expected period-by-period earnings using the forecasts and long-term interest rates.",
    "Time coverage: 1984 to 2018.",
    "Market participants’ forecasts:",
    "Valuation dynamics:",
    "Subjects: Asset prices, Financial institutions, Financial services, Labor, Long term interest rates, National accounts, Prices, Return on investment, Stocks, Wages",
    "Keywords: asset prices, corporate earnings, earnings, earnings outlook, equity risk premium, growth expectation, interest rate, Long term interest rates, period-by-period earnings, present value, present-value computation, profit growth, rate of return, Return on investment, risk premium, Stocks, value investor, Wages, WP",
    "**The Present Value of Corporate Profits: A Forecasters’ Survey Perspective, WP/19/12, January 2019**"
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