A new measure of earnings forecast uncertainty
Relying on the well-established theoretical result that uncertainty has a common and an idiosyncratic component, we propose a new measure of earnings forecast uncertainty as the sum of dispersion among analysts and the variance of mean forecast errors estimated by a GARCH model. The new measure is based on both common and private information available to analysts at the time they make their forecasts. Hence, it alleviates some of the limitations of other commonly used proxies for forecast uncertainty in the literature. Using analysts' earnings forecasts, we find direct evidence of the new measure's superior performance.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kajal Lahiri & Xuguang Sheng, 2008.
"Measuring Forecast Uncertainty by Disagreement: The Missing Link,"
Ifo Working Paper Series
Ifo Working Paper No. 60, Ifo Institute for Economic Research at the University of Munich.
- Kajal Lahiri & Xuguang Sheng, 2010. "Measuring forecast uncertainty by disagreement: The missing link," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 514-538.
- Kajal Lahiri & Xuguang Sheng, 2009. "Measuring Forecast Uncertainty by Disagreement: The Missing Link," Discussion Papers 09-06, University at Albany, SUNY, Department of Economics.
- Orie E. Barron, 2002. "High-Technology Intangibles and Analysts' Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 40(2), pages 289-312, 05.
- Doukas, John A. & Kim, Chansog (Francis) & Pantzalis, Christos, 2006. "Divergence of Opinion and Equity Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(03), pages 573-606, September.
- Timothy C. Johnson, 2004. "Forecast Dispersion and the Cross Section of Expected Returns," Journal of Finance, American Finance Association, vol. 59(5), pages 1957-1978, October.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Abarbanell, Jeffery S. & Lanen, William N. & Verrecchia, Robert E., 1995. "Analysts' forecasts as proxies for investor beliefs in empirical research," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 31-60, July.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Degeorge, François & Patel, U & Zeckhauser, Richard, 1998.
"Earnings Management to Exceed Thresholds,"
CEPR Discussion Papers
1790, C.E.P.R. Discussion Papers.
- X. Frank Zhang, 2006. "Information Uncertainty and Stock Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 105-137, 02.
- Michael Clement & Richard Frankel & Jeffrey Miller, 2003. "Confirming Management Earnings Forecasts, Earnings Uncertainty, and Stock Returns," Journal of Accounting Research, Wiley Blackwell, vol. 41(4), pages 653-679, 09.
- Karl B. Diether & Christopher J. Malloy & Anna Scherbina, 2002. "Differences of Opinion and the Cross Section of Stock Returns," Journal of Finance, American Finance Association, vol. 57(5), pages 2113-2141, October.
- Abarbanell, Jeffery & Lehavy, Reuven, 2003. "Biased forecasts or biased earnings? The role of reported earnings in explaining apparent bias and over/underreaction in analysts' earnings forecasts," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 105-146, December.
When requesting a correction, please mention this item's handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:21-33. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.