Lead indicator models and UK analysts' earnings forecasts

Simon Hussain

Accounting and Business Research, 1998, vol. 28, issue 4, 271-280

Abstract: This study examines the predictive ability of models which adjust random walk forecasts of corporate earnings, to incorporate past changes in economic lead indicators. The results suggest that changes in the broad money supply measure M4 contain predictive ability, beyond equivalent changes in other lead indicators or an individual firm's earnings. When forecasts from the broad-money model are compared with forecasts generated by financial analysts a size effect is evident: the superiority of analysts' forecasts is apparent much earlier for large firms than for small firms. This result is consistent with studies suggesting a size-related differential in the collection and dissemination of information by market participants.

Date: 1998
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DOI: 10.1080/00014788.1998.9728915

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