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Can earnings forecasts be improved by taking into account the forecast bias?

Author

Listed:
  • François Dossou

    (SINOPIA AM - Sinopia AM - Sinopia AM)

  • Sandrine Lardic

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Karine Michalon

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

The recent period has highlighted a well-known phenomenon, namely the existence of a positive bias in experts' anticipations. Literature on this subject underlines optimism in the financial analyst community. In this work, our significant contributions are twofold: we provide explanatory bias prediction models which will subsequently allow the calculation of earnings adjusted forecasts, for horizons from 1 to 24 months. We explain the bias using macroeconomic as well as sector and firm specific variables. We obtain some important results. In particular, the macroeconomic variables are statistically significant and their signs are coherent with the intuition. However, we conclude that the microeconomic variables are the main explanatory variables. From the forecast evaluation statistics viewpoints, the adjusted forecasts make it possible quasi-systematically to improve the forecasts of the analysts.

Suggested Citation

  • François Dossou & Sandrine Lardic & Karine Michalon, 2008. "Can earnings forecasts be improved by taking into account the forecast bias?," Post-Print halshs-00365972, HAL.
    • Handle: RePEc:hal:journl:halshs-00365972
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00365972
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    References listed on IDEAS

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    More about this item

    Keywords

    Analysts; Forecasts; Bias; Adjusted; Earnings Bias;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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