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Rational Expectations and Security Analysts' Earnings Forecasts

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  • Ackert, Lucy F
  • Hunter, William C

Abstract

This paper investigates the rationality of security analysts' forecasts. The forecasts of analysts participating in Lynch, Jones, and Ryan's "Institutional Brokers Estimate System" (I/B/E/S) data base are evaluated relative to past values of their own forecast errors, past values of forecasted earnings per share, and quarterly percentage changes in publicly available macroeconomic and financial time series. The publicly available series include the the consumer price index, unemployment rate, oil prices stock prices, gross national product, and corporate profits. The authors conduct a generalized orthogonality test and include only information available to analysts at the time the forecasts are made. The empirical results reject analyst forecast rationality, but not without exception. Copyright 1995 by MIT Press.

Suggested Citation

  • Ackert, Lucy F & Hunter, William C, 1995. "Rational Expectations and Security Analysts' Earnings Forecasts," The Financial Review, Eastern Finance Association, vol. 30(3), pages 427-443, August.
  • Handle: RePEc:bla:finrev:v:30:y:1995:i:3:p:427-43
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    Cited by:

    1. Nicholas Lee & Fu-Min Chang & Yale Wang & Duong Thu La & Hsiang-Jane Su, 2017. "Impacts of Macroeconomic News on Vietnamese SOEs' Performance," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(1), pages 1-5.
    2. Lucy F. Ackert & William C. Hunter, 1994. "Rational Expectations And The Dynamic Adjustment Of Security Analysts' Forecasts To New Information," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 17(3), pages 387-401, September.
    3. Basu, Sudipta & Markov, Stanimir, 2004. "Loss function assumptions in rational expectations tests on financial analysts' earnings forecasts," Journal of Accounting and Economics, Elsevier, vol. 38(1), pages 171-203, December.
    4. Lawrence, Michael & O'Connor, Marcus, 2000. "Sales forecasting updates: how good are they in practice?," International Journal of Forecasting, Elsevier, vol. 16(3), pages 369-382.

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