Aggregate earnings informativeness and economic shocks: international evidence

Abstract

Our study aims to clarify the use of aggregate earnings to forecast future GDP growth. Using empirical analyses with global quarterly data, we investigate whether aggregate-level profitability drivers, which are components of aggregate earnings, are relevant for forecasting GDP growth. We confirm that aggregate-level profitability drivers are useful for forecasting future GDP growth worldwide.We also show that considering the effects of crises improves the forecast model of GDP growth. In addition, aggregate-level profitability drivers are observed to affect future market returns through the prediction of GDP growth in developed countries, but not in emerging countries.