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Looking Inside the Magic 8 Ball : An Analysis of Sales Forecasts using Italian Firm-Level Data

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Abstract

This paper explores firm forecasting strategies. Using Italian data, we focus on two aspects of the forecasting process: how firms forecast sales and how accurate their predictions are. We relate both outcomes to current conditions, firm experience, global factors, and other firm characteristics. We find that current conditions tend to explain most of the variability in the sales forecast. While past projection errors tend to account for cross-firm differences in models of expectation formation, they are a key explanatory variable in models of forecast accuracy. Among other controls, firm size, experience, and global conditions--through the effect of price changes that the firm anticipates--shape firm expectations and influence the projection errors. Our findings suggest that models of sales expectations should take firm characteristics and market heterogeneity into account.

Suggested Citation

  • Maria D. Tito, 2017. "Looking Inside the Magic 8 Ball : An Analysis of Sales Forecasts using Italian Firm-Level Data," Finance and Economics Discussion Series 2017-027, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2017-27
    DOI: 10.17016/FEDS.2017.027
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    6. Cheng Chen & Tatsuro Senga & Chang Sun & Hongyong Zhang, 2016. "Policy Uncertainty and Foreign Direct Investment: Evidence from the China-Japan Island Dispute," Working Papers 803, Queen Mary University of London, School of Economics and Finance.
    7. Eduardo Morales & Michael Dickstein, 2015. "What do Exporters Know?," 2015 Meeting Papers 139, Society for Economic Dynamics.
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    10. Michael J. Dickstein & Eduardo Morales, 2015. "What do Exporters Know?," Discussion Papers 15-026, Stanford Institute for Economic Policy Research.
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    More about this item

    Keywords

    Exporting; Forecast Accuracy; Sales Forecasting;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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