From Hindsight to Foresight: Understanding and Overcoming Bias in Financial Forecasts

Zweig Derek (), Sumner Timothy and Luke Adam
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Zweig Derek: Value Analytics, Pittsburgh, PA, USA
Sumner Timothy: Value Analytics, Pittsburgh, PA, USA
Luke Adam: Value Analytics, Pittsburgh, PA, USA

Journal of Business Valuation and Economic Loss Analysis, 2024, vol. 19, issue 1, 1-34

Abstract: This study conducts a comprehensive benchmarking analysis on analyst forecasts of revenue and EBITDA for exchange-traded public companies in the U.S. spanning the period from 2009 to 2022. Our findings reveal a consistent and statistically significant upward bias present in both revenue and EBITDA forecasts, on average, as evidenced by various measures of forecast error. This bias is explored at both market sector and market-wide levels of aggregation to check for macro-consistency. Recognizing the significance of these biases, we propose bias-adjustment frameworks aimed at enhancing the accuracy of future analyst forecasts pertaining to revenue and EBITDA. The implications of our study underscore the importance of mitigating such biases for improved forecasting precision in financial markets.

Keywords: Analyst forecasts; projected revenue; projected EBITDA; forecast error; guideline public company method; forward multiples (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/jbvela-2024-0011

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