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Can earnings forecasts be improved by taking into account the forecast bias?

Author

Listed:
  • Sandrine LARDIC

    (Sinopia AM and EconomiX)

  • Karine MICHALON

    (EconomiX)

  • François DOSSOU

    (Sinopia AM)

Abstract

The recent period has highlighted a well-known phenomenon, namely the existence of a positive bias in experts' anticipations. Literature on this subject underlines optimism in the financial analyst community. In this work, our significant contributions are twofold: we provide explanatory bias prediction models which will subsequently allow the calculation of earnings adjusted forecasts, for horizons from 1 to 24 months. We explain the bias using macroeconomic as well as sector and firm specific variables. We obtain some important results. In particular, the macroeconomic variables are statistically significant and their signs are coherent with the intuition. However, we conclude that the microeconomic variables are the main explanatory variables. From the forecast evaluation statistics viewpoints, the adjusted forecasts make it possible quasi-systematically to improve the forecasts of the analysts.

Suggested Citation

  • Sandrine LARDIC & Karine MICHALON & François DOSSOU, 2008. "Can earnings forecasts be improved by taking into account the forecast bias?," Economics Bulletin, AccessEcon, vol. 7(11), pages 1-20.
    • Handle: RePEc:ebl:ecbull:eb-06g10031
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    References listed on IDEAS

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    • G1 - Financial Economics - - General Financial Markets

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