Evaluating the properties of analysts’ forecasts: A bootstrap approach

Mark Clatworthy (), David Peel and Peter F. Pope

The British Accounting Review, 2007, vol. 39, issue 1, 3-13

Abstract: Previous research has reported that analysts’ forecasts of company profits are both optimistically biased and inefficient. However, many prior studies have applied ordinary least-squares regression to data where heteroskedasticity and non-normality are common problems, potentially resulting in misleading inferences. Furthermore, most prior studies deflate earnings and forecasts in an attempt to correct for non-constant error variances, often changing the specification of the underlying regression equation. We describe and employ the wild bootstrap—a technique that is robust both to heteroskedasticity and non-normality—to assess the reliability of prior studies of analysts’ forecasts. Based on a large sample of 23,283 firm years covering the period 1981–2002, our main results confirm the findings of prior research. Our results also suggest that deflation may not be a successful method of correcting for heteroskedasticity, providing a strong rationale for using the wild bootstrap in future work in this, and other areas of accounting and finance research.

Keywords: Analysts’ forecasts; Wild bootstrap; Deflation; Heteroskedasticity (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:39:y:2007:i:1:p:3-13

DOI: 10.1016/j.bar.2006.08.002

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