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The relative forecast accuracy of UK brokers

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  • John Capstaff
  • Krishna Paudyal
  • William Rees

Abstract

In this study we examine whether there are differences in the accuracy of forecasts produced by brokers for a sample of almost 300,000 forecasts of the earnings per share of UK firms, over a period which spans accounting year ends from 1987–95. We report evidence of differential forecast accuracy which is contrary to much of the existing US research, in particular O'Brien (1985 and 1990). We use a forecast error that is controlled for the size of the firm being forecast, the industry to which the firm belongs, the accounting year being forecast, and the forecast horizon. There is evidence of short term persistence in the relative performance of the brokers across the full sample, and for some brokers there is evidence of forecast superiority over an extended period. We also find evidence that the relative accuracy of brokers differs between industries, which suggests that brokers tend to develop expertise in particular sectors. There are significant differences between brokers' accuracy in seven of the 11 industries in the sample, and in some industries there is evidence of persistently superior performance. Overall, these findings have implications for the construction of the earnings expectations proxies that are used in capital market research.

Suggested Citation

  • John Capstaff & Krishna Paudyal & William Rees, 1999. "The relative forecast accuracy of UK brokers," Accounting and Business Research, Taylor & Francis Journals, vol. 30(1), pages 3-16.
    • Handle: RePEc:taf:acctbr:v:30:y:1999:i:1:p:3-16
    DOI: 10.1080/00014788.1999.9728920
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    References listed on IDEAS

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    1. Kou, Wenchao & Hussain, Simon, 2007. "Predictive gains to segmental disclosure matrices, geographic information and industry sector comparability," The British Accounting Review, Elsevier, vol. 39(3), pages 183-195.
    2. Pat McAllister & Graeme Newell & George Matysiak, 2005. "Analysing Uk Real Estate Market Forecast Disagreement," Real Estate & Planning Working Papers rep-wp2005-13, Henley Business School, University of Reading.
    3. Beattie, Vivien, 2005. "Moving the financial accounting research front forward: the UK contribution," The British Accounting Review, Elsevier, vol. 37(1), pages 85-114.
    4. repec:ebl:ecbull:v:7:y:2008:i:11:p:1-20 is not listed on IDEAS
    5. Al-Aamri, Ibrahim & Hussain, Simon & Su, Chen & Hsu, Hwa-Hsien, 2022. "The importance of brokerage house size in determining the utility of IFRS8 segment data to financial analysts," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 47(C).
    6. Abdallah, Abed AL-Nasser & Abdallah, Wissam & Ismail, Ahmad, 2012. "Do accounting standards matter to financial analysts? An empirical analysis of the effect of cross-listing from different accounting standards regimes on analyst following and forecast error," The International Journal of Accounting, Elsevier, vol. 47(2), pages 168-197.
    7. Pat McAllister & Graeme Newell & George Matysiak, 2005. "An Evaluation Of The Performance Of UK Real Estate Forecasters," Real Estate & Planning Working Papers rep-wp2005-23, Henley Business School, University of Reading.
    8. García-Meca, Emma & Sánchez-Ballesta, Juan Pedro, 2006. "Influences on financial analyst forecast errors: A meta-analysis," International Business Review, Elsevier, vol. 15(1), pages 29-52, February.
    9. 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.

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