| In this thesis, I reexamine investors' overreaction to intangible information and aim to find an explanation of the negative relation between future abnormal returns and intangible information. I predict that investors' mispricing of intangible information can be attributable to the component of intangible information that is related to future earnings. In addition, I investigate the relation between analysts' earnings forecasts and intangible information. I find a strongly positive relation between future earnings and intangible information in a diminishing fashion over multiple periods. Accordingly, intangible information has negative implications for future profitability growth due to the diminishing effect. It is the misunderstanding of the diminishing effect of intangible information on future earnings that leads to investors' overpricing of intangible information. I also find that analysts understand and incorporate past intangible information when making earnings forecasts. |
