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Financial Analysts’ Forecasts and Unprecedented Events: The Case of German Reunification


  • WaQar Ghani


  • Samuel Szewczyk
  • Tayyeb Shabbir


We use the chain of events from the fall of the Berlin Wall to the reunification of Germany to examine how capital market participants respond to momentous and unprecedented events. Our examination measures the impact of these events on analysts’ forecasts for the earnings of West German firms. Our results show a significant decrease in analysts’ ability to accurately forecast earnings. Contrary to the public’s euphoria, the sense of the market was generally negative about the implications of unification for West German firms. This negative sentiment was spread across most of the broad sectors, but within those sectors the results were significantly positive for select groups of industries. It appears that, in the face of this extraordinary event, financial analysts were detached from the emotions it engendered and were discriminating in their assessment of its impact. Copyright International Atlantic Economic Society 2007

Suggested Citation

  • WaQar Ghani & Samuel Szewczyk & Tayyeb Shabbir, 2007. "Financial Analysts’ Forecasts and Unprecedented Events: The Case of German Reunification," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 13(2), pages 123-138, May.
  • Handle: RePEc:kap:iaecre:v:13:y:2007:i:2:p:123-138:10.1007/s11294-007-9076-0
    DOI: 10.1007/s11294-007-9076-0

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    References listed on IDEAS

    1. Christie, Andrew A., 1987. "On cross-sectional analysis in accounting research," Journal of Accounting and Economics, Elsevier, vol. 9(3), pages 231-258, December.
    2. Brown, Lawrence D. & Hagerman, Robert L. & Griffin, Paul A. & Zmijewski, Mark E., 1987. "Security analyst superiority relative to univariate time-series models in forecasting quarterly earnings," Journal of Accounting and Economics, Elsevier, vol. 9(1), pages 61-87, April.
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    4. repec:bla:joares:v:6:y:1968:i:2:p:159-178 is not listed on IDEAS
    5. Fried, Dov & Givoly, Dan, 1982. "Financial analysts' forecasts of earnings : A better surrogate for market expectations," Journal of Accounting and Economics, Elsevier, vol. 4(2), pages 85-107, October.
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    More about this item


    German reunification; financial analysts; forecast revisions; forecast errors; East Germany; West Germany; German economy; Berlin Wall; analysts’ expectations; sectoral valuation; event studies; forecast earnings; valuation effects; G14; P51;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems


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