Earnings Stability as a Source of Alpha

Klement, Joachim
October 2011
Journal of Financial Planning;Oct2011, Vol. 24 Issue 10, p46
Academic Journal
The article discusses the role of earnings stability in developing stock selection processes based on traditional valuation and profitability ratios. It explores earnings stability as a source of alpha for five-country-based stock market indices, as well as its ability to eliminate highly volatile stocks, thus reducing portfolio volatility among companies. Moreover, it notes that the earning stability can be associated in stock selection process as an additional variable to rule out companies with less predictable earning, allowing financial planners to generate stock portfolios that achieve higher returns to a passive investment approach.


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