Note on adjustments to analysts’ earnings forecasts based upon systematic cross-sectional components of prior-period errors

Note on adjustments to analysts’ earnings forecasts based upon systematic cross-sectional components of prior-period errors

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Article ID: iaor19961516
Country: United States
Volume: 41
Issue: 8
Start Page Number: 1392
End Page Number: 1396
Publication Date: Aug 1995
Journal: Management Science
Authors: , ,
Keywords: investment, time series & forecasting methods
Abstract:

This study assesses the effectiveness of using systematic components of cross-sectional forecast errors from prior years in order to adjust current analysts’ earnings forecasts. The empirical results document that a significant component of the cross-sectional MSE in analysts’ forecasts is systematic, and that parameter estimates from earlier periods enable the elimination of a substantial portion of the systematic errors in current forecasts. Further improvements in forecast accuracy are attained by the incorporation of prior-year excess security returns in order to reduce unsystematic error.

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