Note on Adjustments to Analysts' Earnings Forecasts Based Upon Systematic Cross-Sectional Components of Prior-Period Errors

Pieter T. Elgers, May H. Lo and Dennis Murray
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Pieter T. Elgers: Department of Accounting, University of Massachusetts, Amherst, Massachusetts 01003
May H. Lo: Western New England College, Springfield, Massachusetts 01119
Dennis Murray: University of Colorado, Denver, Colorado 80202

Management Science, 1995, vol. 41, issue 8, 1392-1396

Abstract: This study assesses the effectiveness of using systematic components of cross-sectional forecast errors from prior years in order to adjust current analysts' earnings forecasts. The empirical results document that a significant component of the cross-sectional MSE in analysts' forecasts is systematic, and that parameter estimates from earlier periods enable the elimination of a substantial portion of the systematic errors in current forecasts. Further improvements in forecast accuracy are attained by the incorporation of prior-year excess security returns in order to reduce unsystematic error.

Keywords: forecasting; analysts' earnings forecasts; systematic errors (search for similar items in EconPapers)
Date: 1995
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