inthetwoperiodsandtheaveragecorrelationacrossthetwo
periods was close to zero (0.02).
Ifpastgrowthinearningsisnotareliableindicatoroffuture
growth atmany firms, itbecomes evenless so atsmaller
firms.Thegrowthratesatsmallerfirmstendtobeevenmore
volatilethangrowthratesatotherfirmsinthemarket.The
correlationbetweengrowthratesinearningsinconsecutive
timeperiods(five-year,three-year,andone-year)forfirmsin
theUnitedStates,categorizedbymarketvalue,isreportedin
Figure 4.1.
FIGURE 4.1 Correlations in Earnings Growth by Market
Capitalization
Whereasthecorrelationstendtobehigheracrosstheboard
for one-year growth rates than for three-year or five-year
growthratesinearnings,theyarealsoconsistentlylowerfor