Self-selection and analyst coverage

Article Abstract:

Self-selection by analysts partially explains why analysts' earnings forecasts are generally overoptimistic. In an investigation of the relation between analysts' information about a stock's prospects and their decisions to provide recommendations and earnings forecasts, it was found that analysts selectively issue recommendations and forecasts, depending on whether their information about a firm is favorable or unfavorable. Consequently, recommendations for newly added stocks are issued when these have more favorable ratings. The decreased likelihood for analysts to report recommendations and forecasts when they have unfavorable information explains why overpessimistic errors are underrepresented in observed distribution of forecast errors.

Financial Forecasting, Investment analysis, Securities analysis

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The relative informativeness of analysts' stock recommendations and earnings forecast revisions

Article Abstract:

A study was conducted to examine the relationship between stock returns and two attributes of sell-side analyst reports, namely stock recommendations and earnings forecast revisions. This research used a sample of 576 analyst reports issued from Jan 1988 to Jun 1991. Findings revealed that stock recommendations and earnings forecast revisions jointly account for 5% of the variation in surplus returns accrued around the report publication date. Recommendations were found to be informative even though there was a loss of information when analysts made recommendations instead of valuations. Moreover, investors valued earnings forecast revisions in reports with buy recommendations than revisions in reports with holds or sells.

Investment advisers, Earnings per share

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Forecast accuracy of individual analysts in nine industries

Article Abstract:

The forecast accuracy of individual analysts was researched to determine whether analysts' forecasting ability could be determined on an ex post basis. The research analyzed the forecasts of 404 analysts for nine industries from Lynch, Jones and Ryan's Institutional Brokers Estimate System data base. Research focused on earnings forecasting and considered whether the distribution of accuracy was different from a random distribution. Research results revealed that individual analysts did not exhibit consistent differences in their forecasting ability. The results indicated that efforts to enhance the accuracy of consensus measures by weighting forecasts based on analysts' track records would yield poor results.

Statistics, Forecasting, Lynch, Jones and Ryan Inc.

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