Predicting Long-Term Earnings Growth : Comparisons of Expected Return Models, Submartingales and Value Line Analysts

This papers derives four-five year predictions of growth rates of accounting earnings per share implicit in four expected return models commonly used in financial research. A comparison of such growth rates with those produced and reported by Value Line analysts and those generated by a submartingale model revealed the following: two expected return models - the Sharpe-Lintner-Mossin model and the Black model - were significantly more accurate than the submartingale model, though not significantly more accurate than the other return models. However, the growth rate forecasts provided by Value Line significantly outperformed all the other models tested - none of which relied on the direct input of a security analyst