The role of accounting fundamentals and other information in analyst forecast errors

Danilo S. Monte‐Mor, Fernando C. Galdi and Cristiano M. Costa

International Finance, 2018, vol. 21, issue 2, 175-194

Abstract: In this paper, we study analyst forecast errors in the United States, and decompose these errors into two different sources: accounting fundamentals and other information. Using data from 1983 to 2012, our results lead to two conclusions. First, using the decomposition approach, we show that on average, the component of analyst forecast errors based on ‘accounting information’ is optimistic; however, the component of analyst forecast errors based on ‘other information’ is pessimistic. Second, although occasionally analysts make forecasts with small errors, the decomposition of such errors provide, on average, larger (positive) accounting errors, and larger (negative) other information errors. In this case, our results suggest that analysts' luck occasionally surpasses their skills.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:bla:intfin:v:21:y:2018:i:2:p:175-194

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