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The Relationship Between Volatility and Predictability of Profit

Received: 30 May 2015     Accepted: 6 June 2015     Published: 19 June 2015
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Abstract

This article is discussed relationship between volatility and predictability of profit. This is clear that one purposes of accounting and preparing financial statements, provide useful information to facilitate decision-making. With financial reports is done predictability for organization’s performance future. Accounting profit forecasts as a factor in economic decision-making are a favorite of investors, creditors, managers, financial analysts, and researchers. People can use this information in evaluation models, to improve the efficiency of capital markets, to assess their ability to pay, risk assessment, assessment of economic performance and stewardship of management, evaluation of how management accounting methods used in the discussion of income smoothing earnings forecasts for management decisions and use the economic, finance and accounting research. In this study to review and analyze the relationship between volatility and the ability to forecast profits in the short term and long term in an Iranian bank, in the period of 2009 till 2014. In fact, this article seeks to improve profit forecasts by variability of profits. The results show that the volatility of short-term and long-term profitability and predictability are inversely. The relationship between predictability and volatility is weaker than the relationship between predictability and the level of profits in the short-term and long-term. So, the current profit more appropriate tool to judge the predictability of earnings. Long-term and short-term profit trends mean reversion.

Published in Journal of Finance and Accounting (Volume 3, Issue 4)
DOI 10.11648/j.jfa.20150304.12
Page(s) 69-76
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Profit, Volatility, Predictability, Long-Term and Short-Term

References
[1] Taghavi, M. Janani, M.H. (2010), Tehran Stock Exchange and macroeconomic variables, Stock Exchange journal, No. 24, P. 16
[2] Aghaii, M.A., Mokhtarian, O. (2005), Review of accounting and auditing investors in the Tehran Stock Exchange, Stock Exchange journal, No. 36, P. 3-25
[3] Mehrani, S., Hesarzade, R. (2012), Fluctuations in its earnings forecasts, Journal of Accounting, year two, No. 6.
[4] Dechow, P. and Dichev, I. (2002). The quality of accruals andearnings: the role of ccruas in estimation errors. TheAccounting Review. 77: 35-59.
[5] Odean, T. (1998). Volume, volatility, price, and profit when all traders are above average. The Journal of Finance, 53(6), 1887-1934.
[6] Azizi, A. (2000), the effect of fluctuations in macroeconomic indicators on stock returns, MSc dissertation, Azad University, Tehran, Iran, department economy and managemenet
[7] Goncalves, S., & Guidolin, M. (2006). Predictable dynamics in the S&P 500 index options implied volatility surface. The Journal of Business, 79(3), 1591-1635.
[8] Khaleghi Moghadam, A. (2000), Effect of publication of priority on the dividend yield on the stock exchange banks, Quarterly Journal of humanities and social sciences, year 4, No. 15
[9] Manson, S. and Coakley, J. (2009). Does volatility improve UK earnings forecasts? Journal of Business Finance & Accounting, 36 (9-10): 1148-1179.
[10] Dabagh nasab, M. (2006), The impact of macro-financial variables on the price index of Tehran Stock Exchange, MSc dissertation, Tehran university, Iran, department economy
[11] Marquering, W., & Verbeek, M. (2004). The economic value of predicting stock index returns and volatility. Journal of Financial and Quantitative Analysis, 39(02), 407-429.
[12] Nam, K., Pyun, C. S., & Arize, A. C. (2002). Asymmetric mean-reversion and contrarian profits: anst-garch approach. Journal of Empirical Finance, 9(5), 563-588.
[13] Dichev, I. and Tang, V. W. (2009). Earnings volatility and earnings predictability. Journal of Accounting and Economics. 47: 160-181.
[14] Dichev, I. D. and Tang, V. W. (2008). Matching and the changing properties of accounting earnings over the last 40 years. TheAccounting Review. 83: 1-36.
[15] Haghighat, H., Mo’tamed, M. (2012), Relationship between profit and forecast volatility, Accounting progress of Shiraz University, year3, No. 2, P. 65-87.
[16] Kadkhodaii, H. (2002), the impact of macroeconomic variables on stock index, Abrar eghtesadi journal, No. 10, P. 10-15.
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  • APA Style

    Yadollah Dakka, Malihe Rostami. (2015). The Relationship Between Volatility and Predictability of Profit. Journal of Finance and Accounting, 3(4), 69-76. https://doi.org/10.11648/j.jfa.20150304.12

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    ACS Style

    Yadollah Dakka; Malihe Rostami. The Relationship Between Volatility and Predictability of Profit. J. Finance Account. 2015, 3(4), 69-76. doi: 10.11648/j.jfa.20150304.12

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    AMA Style

    Yadollah Dakka, Malihe Rostami. The Relationship Between Volatility and Predictability of Profit. J Finance Account. 2015;3(4):69-76. doi: 10.11648/j.jfa.20150304.12

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  • @article{10.11648/j.jfa.20150304.12,
      author = {Yadollah Dakka and Malihe Rostami},
      title = {The Relationship Between Volatility and Predictability of Profit},
      journal = {Journal of Finance and Accounting},
      volume = {3},
      number = {4},
      pages = {69-76},
      doi = {10.11648/j.jfa.20150304.12},
      url = {https://doi.org/10.11648/j.jfa.20150304.12},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20150304.12},
      abstract = {This article is discussed relationship between volatility and predictability of profit. This is clear that one purposes of accounting and preparing financial statements, provide useful information to facilitate decision-making. With financial reports is done predictability for organization’s performance future. Accounting profit forecasts as a factor in economic decision-making are a favorite of investors, creditors, managers, financial analysts, and researchers. People can use this information in evaluation models, to improve the efficiency of capital markets, to assess their ability to pay, risk assessment, assessment of economic performance and stewardship of management, evaluation of how management accounting methods used in the discussion of income smoothing earnings forecasts for management decisions and use the economic, finance and accounting research. In this study to review and analyze the relationship between volatility and the ability to forecast profits in the short term and long term in an Iranian bank, in the period of 2009 till 2014. In fact, this article seeks to improve profit forecasts by variability of profits. The results show that the volatility of short-term and long-term profitability and predictability are inversely. The relationship between predictability and volatility is weaker than the relationship between predictability and the level of profits in the short-term and long-term. So, the current profit more appropriate tool to judge the predictability of earnings. Long-term and short-term profit trends mean reversion.},
     year = {2015}
    }
    

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  • TY  - JOUR
    T1  - The Relationship Between Volatility and Predictability of Profit
    AU  - Yadollah Dakka
    AU  - Malihe Rostami
    Y1  - 2015/06/19
    PY  - 2015
    N1  - https://doi.org/10.11648/j.jfa.20150304.12
    DO  - 10.11648/j.jfa.20150304.12
    T2  - Journal of Finance and Accounting
    JF  - Journal of Finance and Accounting
    JO  - Journal of Finance and Accounting
    SP  - 69
    EP  - 76
    PB  - Science Publishing Group
    SN  - 2330-7323
    UR  - https://doi.org/10.11648/j.jfa.20150304.12
    AB  - This article is discussed relationship between volatility and predictability of profit. This is clear that one purposes of accounting and preparing financial statements, provide useful information to facilitate decision-making. With financial reports is done predictability for organization’s performance future. Accounting profit forecasts as a factor in economic decision-making are a favorite of investors, creditors, managers, financial analysts, and researchers. People can use this information in evaluation models, to improve the efficiency of capital markets, to assess their ability to pay, risk assessment, assessment of economic performance and stewardship of management, evaluation of how management accounting methods used in the discussion of income smoothing earnings forecasts for management decisions and use the economic, finance and accounting research. In this study to review and analyze the relationship between volatility and the ability to forecast profits in the short term and long term in an Iranian bank, in the period of 2009 till 2014. In fact, this article seeks to improve profit forecasts by variability of profits. The results show that the volatility of short-term and long-term profitability and predictability are inversely. The relationship between predictability and volatility is weaker than the relationship between predictability and the level of profits in the short-term and long-term. So, the current profit more appropriate tool to judge the predictability of earnings. Long-term and short-term profit trends mean reversion.
    VL  - 3
    IS  - 4
    ER  - 

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Author Information
  • Department of management, Firoozkooh Branch, Islamic Azad University, Tehran, Iran

  • Department of finance and accounting, Electronic Branch, Islamic Azad University, Tehran, Iran

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