To overcome the first problem \citet*{linhares2017} applied panel data and vector auto regressions methods to investigate impact of current ratio, earnings per share and book value per share on Brazilian stock returns.
This project deals with the second problem and proposes an empirical investigation into the impact of analysts' forecasts on expected and actual stock returns in a dynamic setting. Actually, we follow the lead of \citet*{Kothari_2016} who concluded "[...] the current state of literature presents a promising opportunity for future research." (p. 209), that "although the implications of analysts’ forecasts to cash flows is clear and the empirical evidence is vast, the links between analysts’ forecasts and expected returns are less established." and later go further saying "Evidence on the link between analysts’ forecasts and expected returns is relatively scarce" (p. 212).
Therefore our planned contribution is not only finding the relation between analysts’ forecasts and expected returns but also to deal with this issue in a asset pricing framework where we can investigate the role of risk aversion and individual discount rates in this relation.
Theoretical Background and Main Empirical Hypotheses
In particular, \citet*{Ghosh_2016} showed an approach on how to incorporate \citet*{Fama_1993} into \citet*{Lucas_1978} dynamic model of asset pricing.