A new approach to predicting analyst forecast errors: Do investors overweight analyst forecasts?

Eric C. So

Journal of Financial Economics, 2013, vol. 108, issue 3, 615-640

Abstract: I provide evidence that investors overweight analyst forecasts by demonstrating that prices do not fully reflect predictable components of analyst errors, which conflicts with conclusions in prior research. I highlight estimation bias in traditional approaches and develop a new approach that reduces this bias. I estimate characteristic forecasts that map current firm characteristics into forecasts of future earnings. Contrasting characteristic and analyst forecasts predicts analyst forecast errors and revisions. I find abnormal returns to strategies that sort firms by predicted forecast errors, consistent with investors overweighting analyst forecasts and predictable biases in analyst forecasts influencing the information content of prices.

Keywords: Analysts; Forecast errors; Earnings; Market efficiency (search for similar items in EconPapers)
JEL-codes: G10 G11 G14 G17 G24 M41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (62)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:108:y:2013:i:3:p:615-640

DOI: 10.1016/j.jfineco.2013.02.002

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