Earnings optimism in green stocks

ABSTRACT

In this study, we systematically examine earnings expectations, proxied by consensus analyst earnings forecast errors (EFEs), about stocks in green energy and clean technology sectors. We find that the EFEs of green stocks are generally positive from 1992 to 2016, indicating a predominance of earnings optimism. However, the earnings optimism of green stocks is significantly less strong than that of the market portfolio. In addition, we observe a segment-varying earnings optimism pattern in green stocks. Moreover, it is observed that investors become more and more optimistic when forecasting earnings of green stocks. In the period from 2008 to 2016, while investors exhibit slightly less optimistic expectations about market-level earnings performance after experiencing the 2008 Global Financial Crisis, they tend to be clearly more confident about the earnings prospects of green stocks in the same period as the first and second commitment periods of the Kyoto Protocol take effect.

KEYWORDS:

• Green stocks
• renewable energy stocks
• earnings optimism
• earnings forecast errors
• behavioral finance

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data that support the findings of this study are available on request from the corresponding author.