The relevance of characteristics of the information environment in the selection of a proxy for the market's expectations for earnings: an extension of Brown, Richardson, and Schwager [1987]

Article Abstract:

Brown, Richardson and Schwager (BRS) (1987) discovered that the excellent forecasting ability of analysts over time-series models is linked to the characteristics of the information environment of a firm, including firm size and the diffusion of analysts' forecasts. An extension of their study was performed to examine if these characteristics are also connected to analyst excellence as a proxy for the expectation for earnings of the market. Results showed that analyst forecast errors are more highly related to excess returns than random walk forecast errors for the overall sample. This higher relation is positively associated to firm size and negatively related to forecast dispersion. Similar to the BRS finding that superior precision is unrelated to the number of lines of business, this characteristic is not significant.

Proxy

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Timely aggregate analyst forecasts as better proxies for market earnings expectations

Article Abstract:

Timely aggregate analyst forecasts display higher predictive ability than mean forecasts. Timely composites show greater association with excess returns in comparison to the mean. These findings are reflected in market association data for three timely composites, five years, and two deflators. The use of timely composites is suggested for researchers who employ market association factors for selecting earnings expectations proxies. Forecasts made within a period of six weeks are averaged to obtain the expectations proxies.

Economic forecasting, Time-series analysis, Time series analysis

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Discussion of the joint effect of management's prior forcast acuracy and the form of its financial forecasts on investor judgment

Article Abstract:

A discussion of a study hypothesizing that revisions in investors' earnings forecasts as well as their confidence in forecasts will correlate positively to management's prior forecasting accuracy is presented. Thee key issues are the importance of behavioral financial accounting studies in general, experimental choices and the study's implications.

United States, Science & research

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