A new measure of earnings forecast uncertainty

Xuguang Sheng and Maya Thevenot

Journal of Accounting and Economics, 2012, vol. 53, issue 1, 21-33

Abstract: Relying on the well-established theoretical result that uncertainty has a common and an idiosyncratic component, we propose a new measure of earnings forecast uncertainty as the sum of dispersion among analysts and the variance of mean forecast errors estimated by a GARCH model. The new measure is based on both common and private information available to analysts at the time they make their forecasts. Hence, it alleviates some of the limitations of other commonly used proxies for forecast uncertainty in the literature. Using analysts' earnings forecasts, we find direct evidence of the new measure's superior performance.

Keywords: Uncertainty; Analyst dispersion; Common information; Private information; BKLS; GARCH (search for similar items in EconPapers)
JEL-codes: C01 M41 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:53:y:2012:i:1:p:21-33

DOI: 10.1016/j.jacceco.2011.11.001

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