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Note on Adjustments to Analysts' Earnings Forecasts Based Upon Systematic Cross-Sectional Components of Prior-Period Errors

Author

Listed:
  • Pieter T. Elgers

    (Department of Accounting, University of Massachusetts, Amherst, Massachusetts 01003)

  • May H. Lo

    (Western New England College, Springfield, Massachusetts 01119)

  • Dennis Murray

    (University of Colorado, Denver, Colorado 80202)

Abstract

This study assesses the effectiveness of using systematic components of cross-sectional forecast errors from prior years in order to adjust current analysts' earnings forecasts. The empirical results document that a significant component of the cross-sectional MSE in analysts' forecasts is systematic, and that parameter estimates from earlier periods enable the elimination of a substantial portion of the systematic errors in current forecasts. Further improvements in forecast accuracy are attained by the incorporation of prior-year excess security returns in order to reduce unsystematic error.

Suggested Citation

  • Pieter T. Elgers & May H. Lo & Dennis Murray, 1995. "Note on Adjustments to Analysts' Earnings Forecasts Based Upon Systematic Cross-Sectional Components of Prior-Period Errors," Management Science, INFORMS, vol. 41(8), pages 1392-1396, August.
    • Handle: RePEc:inm:ormnsc:v:41:y:1995:i:8:p:1392-1396
    DOI: 10.1287/mnsc.41.8.1392
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    Citations

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    Cited by:

    1. 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.
    2. Goodwin, Paul, 2002. "Integrating management judgment and statistical methods to improve short-term forecasts," Omega, Elsevier, vol. 30(2), pages 127-135, April.
    3. Blanc, Sebastian M. & Setzer, Thomas, 2015. "Analytical debiasing of corporate cash flow forecasts," European Journal of Operational Research, Elsevier, vol. 243(3), pages 1004-1015.
    4. Anna M. Cianci & Satoris S. Culbertson, 2010. "The Impact of Motivational and Cognitive Factors on Optimistic Earnings Forecasts," Chapters, in: Brian Bruce (ed.), Handbook of Behavioral Finance, chapter 11, Edward Elgar Publishing.
    5. Lawrence, Michael & O'Connor, Marcus & Edmundson, Bob, 2000. "A field study of sales forecasting accuracy and processes," European Journal of Operational Research, Elsevier, vol. 122(1), pages 151-160, April.
    6. Boris Groysberg & Paul Healy & George Serafeim & Devin Shanthikumar, 2013. "The Stock Selection and Performance of Buy-Side Analysts," Management Science, INFORMS, vol. 59(5), pages 1062-1075, May.
    7. Lawrence, Michael & Goodwin, Paul & O'Connor, Marcus & Onkal, Dilek, 2006. "Judgmental forecasting: A review of progress over the last 25 years," International Journal of Forecasting, Elsevier, vol. 22(3), pages 493-518.

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