Can earnings forecast be improved by taking into account the forecast bias?
Lardic, Sandrine; Dossou, François; Michalon, Karine (2008), Can earnings forecast be improved by taking into account the forecast bias?, Economics Bulletin, 7, 11, p. 1-20
TypeArticle accepté pour publication ou publié
External document linkhttp://economicsbulletin.vanderbilt.edu/2008/volume7/EB-06G10031A.pdf
Journal nameEconomics Bulletin
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Abstract (EN)The recent period has highlighted a well-known phenomenon, namely the existence of a positive bias in experts’ anticipations. Literature on this subject underlines optimism in the financial analyst community. In this work, our significant contributions are twofold: we provide explanatory bias prediction models which will subsequently allow the calculation of earnings adjusted forecasts, for horizons from 1 to 24 months. We explain the bias using macroeconomic as well as sector and firm specific variables. We obtain some important results. In particular, the macroeconomic variables are statistically significant and their signs are coherent with the intuition. However, we conclude that the microeconomic variables are the main explanatory variables. From the forecast evaluation statistics viewpoints, the adjusted forecasts make it possible quasi-systematically to improve the forecasts of the analysts.
Subjects / KeywordsEarnings Bias; Forecasts; Firms
JELE37 - Forecasting and Simulation: Models and Applications
C53 - Forecasting and Prediction Methods; Simulation Methods
G17 - Financial Forecasting and Simulation
G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
L25 - Firm Performance: Size, Diversification, and Scope
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