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The Impact of Analysts' Forecast Errors and Forecast Revisions on Stock Prices

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  • William Beaver
  • Bradford Cornell
  • Wayne R. Landsman
  • Stephen R. Stubben

Abstract

We present a comprehensive analysis of the association between stock returns, quarterly earnings forecast errors, and quarter‐ahead and year‐ahead earnings forecast revisions. We find that forecast errors and the two forecast revisions have significant effects on stock prices, indicating each conveys information content. Findings also show that the fourth quarter differs from other quarters—the relative importance of the forecast error (quarter‐ahead forecast revision) is lower (higher). We also find a marked upward shift over time in the forecast error and forecast revision coefficients, consistent with the I/B/E/S database reflecting an improved quality of both earnings forecasts and actual earnings.

Suggested Citation

  • William Beaver & Bradford Cornell & Wayne R. Landsman & Stephen R. Stubben, 2008. "The Impact of Analysts' Forecast Errors and Forecast Revisions on Stock Prices," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(5‐6), pages 709-740, June.
    • Handle: RePEc:bla:jbfnac:v:35:y:2008:i:5-6:p:709-740
    DOI: 10.1111/j.1468-5957.2008.02079.x
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    Cited by:

    1. Amir Rubin & Eran Rubin, 2010. "Informed Investors and the Internet," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7‐8), pages 841-865, July.
    2. Bok Baik & Wooseok Choi, 2010. "Managing Earnings Surprises in Japan: Perspectives from Main Bank Relationships and Institutional Ownership," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5‐6), pages 495-517, June.
    3. Andrew C. Call & Max Hewitt & Jessica Watkins & Teri Lombardi Yohn, 2021. "Analysts’ annual earnings forecasts and changes to the I/B/E/S database," Review of Accounting Studies, Springer, vol. 26(1), pages 1-36, March.
    4. Weiqi Zhang & Huong Ha & Hui Ting Evelyn Gay, 2020. "Analysts’ forecasts between last consensus and earning announcement date," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 18(4), pages 779-793, November.
    5. Po‐Chang Chen & Ganapathi S. Narayanamoorthy & Theodore Sougiannis & Hui Zhou, 2020. "Analyst underreaction and the post‐forecast revision drift," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1151-1181, October.
    6. Ryan G. Chacon & Dan W. French & Kuntara Pukthuanthong, 2021. "The Information Content of NAV Estimates," The Journal of Real Estate Finance and Economics, Springer, vol. 63(4), pages 598-629, November.
    7. Ryan Chacon & Dan French & Kuntara Pukthuanthong, 2018. "The Information Content of Analysts' Net Asset Value Estimates: The Case of Real Estate Investment Trusts (REITs)," ERES eres2018_82, European Real Estate Society (ERES).
    8. Michael Eames, 2008. "Discussion of The Impact of Analysts' Forecast Errors and Forecast Revisions on Stock Prices," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(5‐6), pages 741-747, June.
    9. Vahid Biglari Author_Email: vahidbiglari@siswa.um.edu.my & Gurcharan Singh Pritam Singh, 2011. "The Effect Of Market Incentives On Analyst Forecast Management And Analyst Forecast Error," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-215, Conference Master Resources.
    10. Angelo Fanelli & Vilmos F. Misangyi & Henry L. Tosi, 2009. "In Charisma We Trust: The Effects of CEO Charismatic Visions on Securities Analysts," Organization Science, INFORMS, vol. 20(6), pages 1011-1033, December.

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