With the White Home downplaying the worth of quarterly reporting for firms, buyers face a well-known query: does the price of producing info outweigh the advantages?
Utilizing Robert Shiller’s long-run information, this put up exhibits that quarterly earnings include info that’s probably beneficial to each long-term allocators and short-term merchants. Its advantages, which I don’t try and quantify, needs to be weighed towards any financial savings from less-frequent reporting.
Quarterly vs. Semi-Annual: What’s at Stake
The White Home this week referred to as for a change from quarterly to semi-annual earnings reporting. President Donald Trump argued that such a shift would save firms time and cash.
Which may be true. However would buyers lose beneficial info?
To reply this query, I exploit earnings information from Robert Shiller’s on-line information from January 1970 (1970:1), the yr wherein the Securities and Change Fee made quarterly earnings necessary, to 2025:6 to check relationships among the many change in three-month earnings, six-month earnings, and the pattern in earnings. I outline the pattern as a 61-month centered shifting common change in earnings. Particularly, I check whether or not figuring out three-month earnings’ modifications helps an investor higher estimate modifications within the longer-term pattern in earnings.
Chart 1 exhibits three-month earnings in inexperienced, six-month earnings in pink, and pattern earnings in blue. Collection begin in January 2000 (2000:1), fairly than 1970:1, for ease of visualization.
Chart 1. 3-month, 6-month, and pattern earnings, 2000:1 to 2025:6.
Supply: Robert Shiller on-line information, writer calculations.
After all, three-month earnings are choppier than six-month earnings. However it isn’t apparent from visible inspection that figuring out three-month earnings along with six-month earnings would assist a long-term investor predict modifications in pattern earnings. (I check this beneath and discover that they could).
It’s, nevertheless, apparent {that a} short-term investor, one maybe desirous about earnings modifications in durations of lower than a yr, would profit from figuring out three-month earnings. This statement is confirmed empirically beneath.
I begin with the long-term investor, who I assume is within the long-term pattern in earnings. A pure method to gauge the worth of getting three-month earnings along with (or as an alternative of) six-month earnings is to mannequin the change in pattern earnings as a operate of 1 or each, estimate that mannequin utilizing abnormal least squares, and evaluate mannequin accuracy. On this put up, I exploit R-squared as my measure of match (or adjusted R-squared) — the bigger, the higher.
At any level, the investor is aware of one-half the present pattern in earnings. That’s, they know the primary 30 months’ earnings of the present 61-month window, my proxy for the pattern in earnings. And so they know both the final three months of earnings, or the final six months of earnings, or each.
To find out whether or not receiving earnings info each three months versus each six months would assist the long-term investor to higher predict the pattern, I estimated specs the place the change in 30-month-ahead pattern inflation is defined by the change in six-month earnings alone plus the prior earnings-trend change (Mannequin 1). In Mannequin 2, the pattern change is defined by the identical variables plus the three-month change in earnings. Outcomes are proven in Desk 1.
Desk 1. Regressions of pattern inflation change on 3- and 6-month earnings modifications, 1970:1 – 2025:6.
| Dependent variable = Development inflation (30-month lead) | ||
| Mannequin 1 | Mannequin 2 | |
| Six-mo. change (three-mo. lag) | 0.073 (0.013) | 0.061 (0.013) |
| Three-mo. change | – | 0.124 (0.029) |
| Development change | -0.223 (0.041) | -0.234 (.040) |
| Adjusted R-squared | 0.098 | 0.126 |
| Obs | 547 | 547 |
Supply: Robert Shiller on-line information, writer calculations.
Since I’m not desirous about inference, I omit dialogue of estimated coefficient values, aside from to notice that they enter with the anticipated signal. However this, I embrace the prior pattern in earnings to cut back bias in my estimates and commonplace errors seem in parenthesis subsequent to every estimate.
The important thing result’s that including quarterly earnings (three-month change) improves match — the adjusted R-squared will increase from 0.098 for Mannequin 1 to 0.126 for Mannequin 2. Whereas neither match is spectacular, these outcomes recommend that quarterly earnings could assist the long-term investor predict pattern earnings. Different measures of match, specifically the Akaike and Bayesian info standards (AIC and BIC), verify that the specification which incorporates 3-month earnings is extra correct.
As for what could also be of curiosity to merchants (short-term buyers), one would possibly guess that the three-month earnings change is said to the subsequent three-month change. Quarterly earnings modifications are certainly persistent. The scatter in Chart 2 exhibits the autocorrelation of quarterly earnings, the place excessive values (earnings modifications higher than 100%) have been eliminated for simpler viewing. The estimated slope is 0.601 (se = 0.031) — the blue greatest match line is flatter than the black 45-degree diagonal line — and the R-squared is 0.361.
Chart 2. Three-month lagged earnings change vs. three-month earnings change, 1970:1 – 2025:6.
Supply: Robert Shiller on-line information, writer calculations.
And on the danger of estimating the apparent, the R-squared of a mannequin explaining 12-month earnings with six-month earnings (from six-months earlier than) is 0.699, whereas together with three-month earnings (from three-months earlier than) improves the match to 0.953.
Price vs. Profit
It’s practically axiomatic that, in most functions, extra information is preferable to much less. And the outcomes mentioned right here recommend that quarterly earnings include beneficial info for buyers. However producing earnings is dear.
As regulators think about decreasing reporting frequency, they need to weigh not simply the financial savings but additionally the potential losses — losses to buyers ensuing from much less transparency and to the economic system ensuing from impaired market effectivity.
Extra to Assume About
Previous CFA Institute member surveys present clear help for quarterly earnings.