Professional Expectations: Accurary and Diagonosis of Errors

Edwin J. Elton, Martin J. Gruber and Mustafa N. Gultekin

Journal of Financial and Quantitative Analysis, 1984, vol. 19, issue 4, 351-363

Abstract: The purpose of this paper is to analyze the errors made by professional forecasters (analysts) in estimating earnings per share for a large number of firms over a number of years. We have demonstrated in a previous paper that consensus (average) estimates of earnings per share play a key role in share price determination. In this paper, we examine consensus estimates with respect to the following questions: (1) What is the size and pattern of analysts' errors? (2) What is the source of errors? (3) Are some firms more difficult to predict than others? (4) Is there an association between errors in forecasts and divergence of analysts' estimates?

Date: 1984
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