EconPapers    
Economics at your fingertips  
 

Experts' earning forecasts: bias, herding and gossamer information

Olivier Guedj and Jean-Philippe Bouchaud
Additional contact information
Olivier Guedj: Capital Fund Management
Jean-Philippe Bouchaud: Science & Finance, Capital Fund Management

No 500062, Science & Finance (CFM) working paper archive from Science & Finance, Capital Fund Management

Abstract: We study the statistics of earning forecasts of US, EU, UK and JP stocks during the period 1987-2004. We confirm, on this large data set, that financial analysts are on average over-optimistic and show a pronounced herding behavior. These effects are time dependent, and were particularly strong in the early nineties and during the Internet bubble. We furthermore find that their forecast ability is, in relative terms, quite poor and comparable in quality, a year ahead, to the simplest `no change' forecast. As a result of herding, analysts agree with each other five to ten times more than with the actual result. We have shown that significant differences exist between US stocks and EU stocks, that may partly be explained as a company size effect. Interestingly, herding effects appear to be stronger in the US than in the Eurozone. Finally, we study the correlation of errors across stocks and show that significant sectorization occurs, some sectors being easier to predict than others. These results add to the list of arguments suggesting that the tenets of Efficient Market Theory are untenable.

JEL-codes: G10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-cfn, nep-eec, nep-ets, nep-fin, nep-fmk, nep-for and nep-lab
Date: 2004-10
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sfi:sfiwpa:500062

Access Statistics for this paper

More papers in Science & Finance (CFM) working paper archive from Science & Finance, Capital Fund Management 6 boulevard Haussmann, 75009 Paris, FRANCE. Contact information at EDIRC.
Series data maintained by ().

 
Page updated 2017-09-29
Handle: RePEc:sfi:sfiwpa:500062