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Consensus Forecasts of Corporate Earnings: Analysts' Forecasts and Time Series Methods

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  • Robert Conroy

    (School of Business Administration, University of North Carolina, Chapel Hill, North Carolina 27514)

  • Robert Harris

    (School of Business Administration, University of North Carolina, Chapel Hill, North Carolina 27514)

Abstract

An alternative to using a single forecasting method is to average the forecasts made by various methods. In this paper we examine empirically combinations of financial analysts' forecasts and forecasts from time series methods in order to predict corporate earnings per share. We conclude that, on average, the primary forecasting advantages of analysts over time series methods based on annual data appear to occur over short forecast horizons (less than a year). Neither analysts nor other time series methods substantially outperform a random walk prediction of no change when forecasts are made near the beginning of the fiscal year. For predictions in the first half of the fiscal year, there is evidence of forecasting benefits from combining time series and analysts' forecasts, especially if there are few analysts' forecasts.

Suggested Citation

  • Robert Conroy & Robert Harris, 1987. "Consensus Forecasts of Corporate Earnings: Analysts' Forecasts and Time Series Methods," Management Science, INFORMS, vol. 33(6), pages 725-738, June.
  • Handle: RePEc:inm:ormnsc:v:33:y:1987:i:6:p:725-738
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    File URL: http://dx.doi.org/10.1287/mnsc.33.6.725
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    References listed on IDEAS

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    1. Ian I. Mitroff, 1972. "The Myth of Objectivity OR Why Science Needs a New Psychology of Science," Management Science, INFORMS, vol. 18(10), pages 613-618, June.
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    Cited by:

    1. Salvatore TERREGROSSA, "undated". "Accounting for Estimation Risk in CAPM-generated Forecasts of Firm Earnings Growth," EcoMod2004 330600139, EcoMod.
    2. TERREGROSSA Salvatore, "undated". "On the Efficacy of Constraints on the Linear Combination Forecast Model," EcoMod2003 330700144, EcoMod.
    3. Aigbe Akhigbe & Ronald Kudla & Jeff Madura, 2005. "Why are some corporate earnings restatements more damaging?," Applied Financial Economics, Taylor & Francis Journals, pages 327-336.
    4. Webby, Richard & O'Connor, Marcus, 1996. "Judgemental and statistical time series forecasting: a review of the literature," International Journal of Forecasting, Elsevier, vol. 12(1), pages 91-118, March.
    5. Anna M. Cianci & Satoris S. Culbertson, 2010. "The Impact of Motivational and Cognitive Factors on Optimistic Earnings Forecasts," Chapters,in: Handbook of Behavioral Finance, chapter 11 Edward Elgar Publishing.
    6. Dhami, Mandeep K. & Thomson, Mary E., 2012. "On the relevance of Cognitive Continuum Theory and quasirationality for understanding management judgment and decision making," European Management Journal, Elsevier, vol. 30(4), pages 316-326.
    7. Andersson, Patric & Edman, Jan & Ekman, Mattias, 2005. "Predicting the World Cup 2002 in soccer: Performance and confidence of experts and non-experts," International Journal of Forecasting, Elsevier, vol. 21(3), pages 565-576.
    8. Saravanan Kesavan & Vishal Gaur & Ananth Raman, 2010. "Do Inventory and Gross Margin Data Improve Sales Forecasts for U.S. Public Retailers?," Management Science, INFORMS, pages 1519-1533.
    9. 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.
    10. Pasaribu, Rowland Bismark Fernando, 2010. "Anomali Overreaction di bursa efek Indonesia: Penelitian Saham LQ-45
      [Overreaction Anomaly in Indonesia Stock Exchange: Case Study of LQ-45 Stocks]
      ," MPRA Paper 36998, University Library of Munich, Germany.
    11. Almeida, José Elias Feres de & Dalmácio, Flávia Zóboli, 2015. "The Effects of Corporate Governance and Product Market Competition on Analysts' Forecasts: Evidence from the Brazilian Capital Market," The International Journal of Accounting, Elsevier, vol. 50(3), pages 316-339.
    12. Brown, Philip & Clarke, Alex & How, Janice C. Y. & Lim, Kadir J. P., 2002. "Analysts' dividend forecasts," Pacific-Basin Finance Journal, Elsevier, vol. 10(4), pages 371-391, September.
    13. Andersson, Patric, 2004. "How well do financial experts perform? A review of empirical research on performance of analysts, day-traders, forecasters, fund managers, investors, and stockbrokers," SSE/EFI Working Paper Series in Business Administration 2004:9, Stockholm School of Economics.
    14. 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.
    15. Martin Wallmeier, 2005. "Analysts’ Earnings Forecasts for DAX100 Firms During the Stock Market Boom of the 1990s," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, pages 131-151.
    16. Elkin Castaño Vélez & Luis Fernando Melo Velandia, 2000. "Metodos de combinacion de pronosticos: una aplicacion a la inflacion," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, pages 113-165.

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    Keywords

    forecasting; financial analysts; consensus; earnings;

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