An Analysis of Financial Analysts Optimism in Long-term Growth Forecasts
AbstractEvidence suggests that long-term EPS growth forecasts of financial analysts are by and large optimistic. In particular, we test whether the Availability Heuristic (Tversky and Kahneman 1973) is descriptive of analysts’ forecasting behavior, and whether this heuristic can help explain the nature of optimism in growth forecasts. The Availability Heuristic predicts differential processing of information about current versus terminal economic conditions. Specifically, analysts’ forecasts will systematically underestimate (overestimate) growth in contraction (expansion) periods. Our results confirm this prediction. We find strong evidence of a negative association between past growth and realized forecast errors which varies across business cycles in a predictable manner. Following Chan et al (2003), we estimate a growth forecasting model, adjusting for the effects of the Availability Heuristic and business cycle. We find that under these conditions analysts’ long-term growth forecasts show significant explanatory power.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2004-07.
Date of creation: Dec 2004
Date of revision:
Contact details of provider:
Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Steve Spear).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.