On the relation between forecast precision and trading profitability of financial analysts
Carlo Marinelli and
Papers from arXiv.org
We analyze the relation between earning forecast accuracy and expected profitability of financial analysts. Modeling forecast errors with a multivariate Gaussian distribution, a complete characterization of the payoff of each analyst is provided. In particular, closed-form expressions for the probability density function, for the expectation, and, more generally, for moments of all orders are obtained. Our analysis shows that the relationship between forecast precision and trading profitability need not to be monotonic, and that, for any analyst, the impact on his expected payoff of the correlation between his forecasts and those of the other market participants depends on the accuracy of his signals. Furthermore, our model accommodates a unique full-communication equilibrium in the sense of Radner (1979): if all information is reflected in the market price, then the expected payoff of all market participants is equal to zero.
New Economics Papers: this item is included in nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
http://arxiv.org/pdf/1301.6638 Latest version (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1301.6638
Access Statistics for this paper
More papers in Papers from arXiv.org
Series data maintained by arXiv administrators ().