Understanding Analysts' Earnings Expectations: Biases, Nonlinearities, and Predictability

Marco Aiolfi, Marius Rodriguez () and Allan Timmermann

Journal of Financial Econometrics, 2010, vol. 8, issue 3, 305-334

Abstract: This paper studies the asymmetric behavior of negative and positive values of analysts' earnings revisions and links it to the conservatism principle of accounting. Using a new three-state mixture of lognormal models that accounts for differences in the magnitude and persistence of positive, negative, and zero revisions, we find evidence that revisions to analysts' earnings expectations can be predicted using publicly available information such as lagged interest rates and past revisions. We also find that our forecasts of revisions to analysts' earnings estimates help to predict the actual earnings figure beyond the information contained in analysts' earnings expectations. Copyright The Author 2009. Published by Oxford University Press. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Date: 2010
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