If forecasters predict higher earnings for corporations, the stock market will rise. Stock prices will drop with a forecast of lower earnings. But are such forecasts on the money? Dean Croushore uses data from the Survey of Professional Forecasters to check the accuracy of forecasts of corporate profits. The results show that, despite the volatility of corporate profits, the forecasts are rational.

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Copyright © 1999 Federal Reserve Bank of Philadelphia. This article first appeared in Business Review - Federal Reserve Bank of Philadelphia 5 (September/October 1999): 3-12.

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