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Alternative Adjustments to Analysts' Earnings Forecasts: Relative and Complementary Performance

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  • Lo, May H
  • Elgers, Pieter T

Abstract

This study examines the relative and complementary performance of alternative earnings forecast adjustments using a common set of consensus analysts' earnings forecasts. We document that a simple adjustment to analysts' earnings forecasts, based solely on cross-sectional relationships between actual and forecasted earnings in the prior year, performs as well as more complicated adjustment methods, i.e., composite forecasts and persistence adjusted forecasts. A forecast adjustment that is based on prior year earnings and returns, however, provides significant incremental reductions in forecast error and dominates all of the other adjustment methods. Copyright 1998 by MIT Press.

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  • Lo, May H & Elgers, Pieter T, 1998. "Alternative Adjustments to Analysts' Earnings Forecasts: Relative and Complementary Performance," The Financial Review, Eastern Finance Association, vol. 33(2), pages 99-113, May.
    • Handle: RePEc:bla:finrev:v:33:y:1998:i:2:p:99-113
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    Cited by:

    1. So, Eric C., 2013. "A new approach to predicting analyst forecast errors: Do investors overweight analyst forecasts?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 615-640.
    2. Pieter T. Elgers & May H. Lo & Wenjuan Xie & Le Emily Xu, 2016. "A Contextual Evaluation of Composite Forecasts of Annual Earnings," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(03), pages 1-40, September.

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