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Earnings forecast bias - a statistical analysis

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Author Info
Karine Michalon () (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)
Sandrine Lardic (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre)
François Dossou (SINOPIA AM - Sinopia AM - Sinopia AM)

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Abstract

The evaluation of the reliability of analysts' earnings forecasts is an important aspect of research for different reasons: Many empirical studies employ analysts' consensus forecasts as a proxy for the market's expectations of future earnings in order to identify the unanticipated component of earnings, institutional investors make considerable use of analysts' forecasts when evaluating and selecting individual sharesand the performance of analysts' forecasts sheds light on the process by which agents form expectations about key economic and financial variables. The recent period put forward a well-known phenomenon, namely the existence of a positive bias in experts' anticipations: the latter tend to over-estimate earnings. In this paper, we study the properties of this bias according to various aspects, that is to say according to country, sector, but also according to the size of the companies.

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Paper provided by HAL in its series Post-Print with number halshs-00142773_v2.

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Date of creation: 2005
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Publication status: Published, Banques et marchés, 2005, 78, 11-15
Handle: RePEc:hal:journl:halshs-00142773_v2

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Related research
Keywords: earnings forecasts; bias; consensus;

References listed on IDEAS
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  1. Brown, Lawrence D., 1993. "Earnings forecasting research: its implications for capital markets research," International Journal of Forecasting, Elsevier, vol. 9(3), pages 295-320, November. [Downloadable!] (restricted)
  2. John Capstaff & Krishna Paudyal & William Rees, 2001. "A Comparative Analysis of Earnings Forecasts in Europe," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 28(5-6), pages 531-562. [Downloadable!] (restricted)
  3. Conroy, Robert M. & Harris, Robert S., 1995. "Analysts' earnings forecasts in Japan: Accuracy and sell-side optimism," Pacific-Basin Finance Journal, Elsevier, vol. 3(4), pages 393-408, December. [Downloadable!] (restricted)
  4. Brous, Peter A. & Kini, Omesh, 1993. "A reexamination of analysts' earnings forecasts for takeover targets," Journal of Financial Economics, Elsevier, vol. 33(2), pages 201-225, April. [Downloadable!] (restricted)
  5. Jensen, Michael C., 1978. "Some anomalous evidence regarding market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 95-101. [Downloadable!] (restricted)
  6. Harrison Hong & Jeffrey D. Kubik, 2003. "Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts," Journal of Finance, American Finance Association, vol. 58(1), pages 313-351, 02. [Downloadable!] (restricted)
  7. Terence Lim, 2001. "Rationality and Analysts' Forecast Bias," Journal of Finance, American Finance Association, vol. 56(1), pages 369-385, 02. [Downloadable!] (restricted)
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