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Analyst Forecasting Errors and Their Implications for Security Analysis
Abstract
A comparison of 66,100 consensus estimates of Wall Street analysts with reported earnings for a large sample of NYSE, Amex, and OTC companies demonstrates that their forecasts differ significantly from actual reported earnings. A minority of estimates fall within a range around reported earnings considered acceptable to many professional investors. The error rates are not meaningfully affected by the business cycle or industry groupings. The average error also appears to be increasing over time. These findings question the use of finely calibrated earnings forecasts that are integral to the most common valuation models and indirectly question the valuation methods themselves.
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Cited by
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Kahneman, D., & Frederick, S. (2002) · Heuristics and Biases · doi:10.1017/cbo9780511808098.004 · Cited by 3,476
Earnings Management to Exceed Thresholds
Degeorge, F., Patel, J., & Zeckhauser, R. (1999) · The Journal of Business · doi:10.1086/209601 · Cited by 2,751
Slovic, P., Finucane, M., Peters, E., & MacGregor, D. G. (2002) · Heuristics and Biases · doi:10.1017/cbo9780511808098.025 · Cited by 2,349
Support theory: a nonextensional representation of subjective probability
Tversky, A., & Koehler, D. J. (1994) · Psychological Review · doi:10.1037/0033-295x.101.4.547 · Cited by 1,167
Inefficiency in Analysts' Earnings Forecasts: Systematic Misreaction or Systematic Optimism?
Easterwood, J. C., & Nutt, S. R. (1999) · The Journal of Finance · doi:10.1111/0022-1082.00166 · Cited by 765
Metadata
- Authors
- Dreman, D. N., & Berry, M. A.
- Venue
- Financial Analysts Journal
- Publisher
- Informa UK Limited
- Published
- 1995-05
- Volume
- 51
- Issue
- 3
- Pages
- 30-41
- ISSN
- 0015-198X (ISSN-L)
- 1938-3312
- OpenAlex
- W1862704692
- Cited by
- 257
- References
- 0
- FWCI
- 22.98
- Type
- journal article
- Language
- en
- Open access
- closed
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- Dreman, D. N., & Berry, M. A. (1995). Analyst Forecasting Errors and Their Implications for Security Analysis. Financial Analysts Journal. https://doi.org/10.2469/faj.v51.n3.1903
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
