A New Approach to Predicting Analyst Forecast Errors: Do Investors Overweight Analyst Forecasts?

The major findings of this study are: (1) earnings performance of splitting firms is favorable relative to preevent longterm analyst (Value Line) forecasts; (2) analysts significantly revise earnings forecasts upward in response to stock split announcements; and (3) in the case of stock split announcing firms, there is a high correlation between future earnings performance and analyst forecast revision. These findings indicate that stock split announcements convey “permanent” earnings information to the market, and security analysts scrutinize the earnings signal at the firm specific level. The results support both the earnings signaling hypothesis and the attention directing hypothesis concerning stock split events.

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The Trend in Firm Profitability and the Cross-Section of Stock Returns

The Accounting Review ◽

10.2308/accr-51708 ◽

2017 ◽

Vol 92 (5) ◽

pp. 1-32 ◽

Cited By ~ 17

Author(s):

Ferhat Akbas ◽

Chao Jiang ◽

Paul D. Koch

Keyword(s):

Risk Factors ◽

Stock Returns ◽

Cross Section ◽

The Other ◽

Analyst Forecast ◽

Forecast Errors ◽

Earnings Surprise ◽

Firm Profitability ◽

Earnings Momentum ◽

Jel Classifications

ABSTRACT This study shows that the recent trajectory of a firm's profits predicts future profitability and stock returns. The predictive information contained in the trend of profitability is not subsumed by the level of profitability, earnings momentum, or other well-known determinants of stock returns. The profit trend also predicts the earnings surprise one quarter later, and analyst forecast errors over the following 12 months, suggesting that sophisticated investors underreact to the information in the profit trend. On the other hand, we find no evidence of investor overreaction, and our results cannot be explained by well-known risk factors. JEL Classifications: G12; G14.

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The role of accounting fundamentals and other information in analyst forecast errors

International Finance ◽

10.1111/infi.12129 ◽

2018 ◽

Vol 21 (2) ◽

pp. 175-194

Author(s):

Danilo S. Monte-Mor ◽

Fernando C. Galdi ◽

Cristiano M. Costa

Keyword(s):

Analyst Forecast ◽

Forecast Errors ◽

Other Information

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Meeting Individual Analyst Expectations

The Accounting Review ◽

10.2308/accr-50828 ◽

2014 ◽

Vol 89 (6) ◽

pp. 2203-2231 ◽

Cited By ~ 15

Author(s):

Marcus P. Kirk ◽

David A. Reppenhagen ◽

Jennifer Wu Tucker

Keyword(s):

Private Information ◽

Explanatory Power ◽

Analyst Forecasts ◽

Data Availability ◽

Analyst Forecast ◽

Analyst Expectations ◽

Management Literature ◽

Two Measures ◽

Reported Earnings

ABSTRACT The expectations management literature has so far focused on firms meeting the analyst consensus forecast—the expectations of analysts as a group—at earnings announcements. In this study we argue that investors may use individual analyst forecasts as additional benchmarks in evaluating reported earnings because the consensus forecast underutilizes private information contained in individual analyst forecasts. We predict that measures reflecting such private information have incremental explanatory power over the consensus forecast for the market's reaction to earnings news. We find results consistent with this prediction by examining two measures: (1) the percentage of individual forecasts met and (2) meeting the key analyst forecast. We extend the literature by documenting the role of individual analyst forecasts in investors' evaluations of reported earnings. JEL Classifications: G10; G11; G17; G14; G24. Data Availability: Data are publicly available from the sources identified in the paper.

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Family firm and analyst forecasts in an emerging economy

Management Decision ◽

10.1108/md-07-2016-0517 ◽

2017 ◽

Vol 55 (9) ◽

pp. 2018-2037 ◽

Cited By ~ 4

Author(s):

Xiaoxiang Zhang ◽

Jo-Ting Wei ◽

Hsin-Hung Wu

Keyword(s):

Family Firms ◽

Stock Exchange ◽

Emerging Market ◽

Population Sample ◽

Analyst Forecasts ◽

Analyst Forecast ◽

Minority Shareholders ◽

Content Type ◽

Earnings Smoothness ◽

Forecast Quality

Purpose The purpose of this paper is to examine how family firms affect analyst forecast dispersion, accuracy and optimism and how earnings smoothness as the moderating factor, affects these relationships in an emerging market context. Design/methodology/approach This paper uses the population sample of firms listed on the Taiwan Stock Exchange from 2009 to 2010 as the research sample, which includes 963 firm-year observations. Findings The findings show that analysts following family firms are more likely to have more dispersed, less accurate and more optimism biased forecasts than those following nonfamily firms. Earning smoothness is mainly used by nonfamily firms as a signaling strategy to improve analyst forecast quality. In contrast, earnings smoothness is mainly used by families as a garbling strategy, stimulating forecast optimism. Only earnings smoothness in family firms with a high level of family ownership concentration is likely to be signaling-oriented to improve analyst forecast accuracy and mitigate analyst optimism biases. Originality/value Emerging markets are not only featured by prevailing principal-principal conflicts but also have multiple levels of agency conflicts among large shareholders, minority shareholders and professionally hired managers. This research reveals the multiple governance roles of family owners in affecting analyst forecast quality, including their entrenchment role in extracting private benefits of control through opaque environments and market discipline distortion role in aligning interests between managers and families without prioritizing meeting or beating analyst forecasts, both at the cost of minority shareholders. This research further disentangles the intertwined signaling oriented and garbiling oriented incentives associated with earnings smoothness under family governance.

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An Examination of Background Error Correlations between Mass and Rotational Wind over Precipitation Regions

Monthly Weather Review ◽

10.1175/2009mwr2998.1 ◽

2010 ◽

Vol 138 (2) ◽

pp. 563-578 ◽

Cited By ~ 18

Author(s):

Jean-François Caron ◽

Luc Fillion

Keyword(s):

Linear Regression ◽

Data Assimilation ◽

Traditional Approach ◽

Forecast Error ◽

Lower Atmosphere ◽

Forecast Errors ◽

Background Error ◽

New Approach ◽

Geostrophic Balance ◽

Analysis System

Abstract The differences in the balance characteristics between dry and precipitation areas in estimated short-term forecast error fields are investigated. The motivation is to see if dry and precipitation areas need to be treated differently in atmospheric data assimilation systems. Using an ensemble of lagged forecast differences, it is shown that perturbations are, on average, farther away from geostrophic balance over precipitation areas than over dry areas and that the deviation from geostrophic balance is proportional to the intensity of precipitation. Following these results, the authors investigate whether some improvements in the coupling between mass and rotational wind increments over precipitation areas can be achieved by using only the precipitation points within an ensemble of estimated forecast errors to construct a so-called diabatic balance operator by linear regression. Comparisons with a traditional approach to construct balance operators by linear regression show that the new approach leads to a gradually significant improvement (related to the intensity of the diabatic processes) of the accuracy of the coupling over precipitation areas as judged from an ensemble of lagged forecast differences. Results from a series of simplified data assimilation experiments show that the new balance operators can produce analysis increments that are substantially different from those associated with the traditional balance operator, particularly for observations located in the lower atmosphere. Issues concerning the implementation of this new approach in a full-fledged analysis system are briefly discussed but their investigations are left for a following study.

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The Effect of Media Competition on Analyst Forecast Properties: Cross-Country Evidence

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x20929487 ◽

2020 ◽

pp. 0148558X2092948

Author(s):

Ying Cao ◽

Sami Keskek ◽

Linda A. Myers ◽

Albert Tsang

Keyword(s):

Financial Performance ◽

Information Acquisition ◽

Institutional Ownership ◽

Analyst Forecasts ◽

Information Environment ◽

Analyst Forecast ◽

International Setting ◽

Acquisition Costs ◽

Cross Country ◽

Effects Of Media

We examine the effect of media competition on analyst forecast properties in an international setting using 113,436 firm-year observations from 32 countries spanning 2000 through 2012. We find that firms in countries with stronger media competition enjoy more accurate, less optimistically biased, and less dispersed analyst forecasts. The effects of media competition on the properties of analyst forecasts are stronger for firms with lower institutional ownership, for firms followed by fewer analysts or by analysts from smaller brokerage houses, and for firms with weaker financial performance. This suggests that media competition plays a more pronounced role in shaping the information environment when information from nonmedia channels is likely to be limited or of lower quality. Finally, we find that analysts in countries with stronger media competition tend to follow more firms, suggesting that stronger media competition reduces analysts’ information acquisition costs, which in turn, improves the properties of their forecasts.

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