Theoretical study on the distribution of profit earnings and stocks returns

Abstract

People make decisions in their daily life that are based on predictions made about the future. In fact, we are all trying to make a connection between two or more variables in a way that could be used for prediction. Profit and cash flow in a private profit making unit make the most fundamental part of information and are the base of most financial information users’ decision making. And judgments and profit making prediction have always been one of the interesting subjects for financial information users, because correct estimation of these figures can play an important role in making the correct decisions (Jahankhani and Saffarian, 2003). Investors buy assets hoping that their expected return over the next period is achieved efficiently. These returns can be predicted, however, it may not be the expected return. In fact, one can predict the profit-making trend of a company by analyzing the previous trend and studying some of the economic variables. However, actual happenings are different from the numbers and data achieved in predictions. The roots of most of these differences lie in the variability of criteria that are the basis for predictive models (Azad, 2004).