EXPERTS' EARNING FORECASTS: BIAS, HERDING AND GOSSAMER INFORMATION

Olivier Guedj () and Jean-Philippe Bouchaud ()
Additional contact information
Olivier Guedj: Science & Finance, Capital Fund Management, 6-8 Bvd Haussmann, 75 009 Paris, France
Jean-Philippe Bouchaud: Science & Finance, Capital Fund Management, 6-8 Bvd Haussmann, 75 009 Paris, France

International Journal of Theoretical and Applied Finance (IJTAF), 2005, vol. 08, issue 07, 933-946

Abstract: We study the statistics of earning forecasts of US, EU, UK and JP stocks during the period 1987–2004. We confirm, on this large data set, that financial analysts are on average over-optimistic and show a pronounced herding behavior. These effects are time dependent, and were particularly strong in the early 1990s and during the Internet bubble. We furthermore find that their forecast ability is, in relative terms, quite poor and comparable in quality, a year ahead, to the simplest "no change" forecast. As a result of herding, analysts agree with each other five to ten times more than with the actual result. We have shown that significant differences exist between US stocks and EU stocks, that may partly be explained as a company size effect. Interestingly, herding effects appear to be stronger in the US than in the Eurozone. Finally, we study the correlation of errors across stocks and show that significant sectorization occurs, some sectors being easier to predict than others. These results add to the list of arguments suggesting that the tenets of Efficient Market Theory are untenable.

Keywords: Positive bias; herding behavior; error sectorization (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024905003281
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:08:y:2005:i:07:n:s0219024905003281

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024905003281

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().