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Analyst Characteristics-Based Consensus Forecasts

In: Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives In 4 Volumes

Author

Listed:
  • Yu-An Chen
  • Dan Palmon

Abstract

Consensus earnings forecasts matter to investment practitioners in forming profitable investment portfolios and matter to researchers in studying how earnings inform the market. This study revisits the issue of considering analyst heterogeneity in forming better analyst consensus earnings forecasts (Clement, 1999; Clement and Tse, 2003; Brown and Mohd, 2003). Based on quarterly data for US firms from 1994 to 2017, the study finds that characteristics-based consensus forecasts outperform the simple mean consensus to predict abnormal returns in both the three-day window around and the two-month drift window after earnings announcements. They perform as well as the median consensus does to predict abnormal returns in the three-day window around earnings announcements but outperform the median consensus in the drift window. Investors may find these findings relevant to their investment decisions, and researchers may find them relevant to the studies of earnings informativeness.

Suggested Citation

  • Yu-An Chen & Dan Palmon, 2024. "Analyst Characteristics-Based Consensus Forecasts," World Scientific Book Chapters, in: Cheng Few Lee & Alice C Lee & John C Lee (ed.), Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives In 4 Volumes, chapter 2, pages 69-115, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811269943_0002
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    More about this item

    Keywords

    Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G1 - Financial Economics - - General Financial Markets
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • G3 - Financial Economics - - Corporate Finance and Governance

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