Information in the Tails of the Distribution of Analysts’ Quarterly Earnings Forecasts

Cameron Truong, Philip B. Shane and Qiuhong Zhao

Financial Analysts Journal, 2016, vol. 72, issue 5, 84-99

Abstract: Investors generally measure earnings announcement news on the basis of the difference between actual earnings and two salient benchmarks: earnings in the same quarter the previous year and a consensus drawn from a distribution of forecasts by financial analysts. We evaluate the implications of a third salient benchmark: the most optimistic forecast when actual earnings exceed the consensus and the most pessimistic forecast when the consensus exceeds actual earnings. We find that considering the information in these tails of the distribution of analysts’ earnings forecasts enhances the profitability of post–earnings announcement drift strategies.Editor’s note: This article was reviewed and accepted by Robert Litterman, executive editor at the time the article was submitted.

Date: 2016
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DOI: 10.2469/faj.v72.n5.7

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