A Positive Model of Earnings Forecasts: Top Down versus Bottom Up

Masako N. Darrough
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Masako N. Darrough: Baruch College, CUNY

The Journal of Business, 2002, vol. 75, issue 1, 127-152

Abstract: This article analyzes the behavior of two groups of corporate earnings forecasters: analysts, who follow individual company fortunes, and market strategists, who predict earnings for various company aggregates. Using data for two market indices, the S&P 500 and the Dow Jones Industrial Average, we document that bottom-up forecasts are systematically more optimistic than top-down forecasts made by strategists. This difference is not driven by the difference in the forecast target. This finding may be explained by the incentives that analysts face and/or by cognitive bias.

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:75:y:2002:i:1:p:127-152

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