IDEAS home Printed from
   My bibliography  Save this paper

The short term prediction of analysts' forecast error


  • Boudt, Kris

    () (KULeuven, Lessius University College, V.U.University of Amsterdam)

  • De Goeij, Peter

    (Tilburg University)

  • Thewissen, James

    () (KULeuven, Lessius University College, HUBrussel)

  • Van Campenhout, Geert

    () (Hogeschool-Universiteit Brussel (HUB), KULeuven)


We examine the profitability of implementing a short term trading strategy based on predicting the error in analysts' earnings per share forecasts using publicly available information. In the 1998-2010 I/B/E/S data, the strategy of taking a long (short) position in stocks with the most pessimistic (optimistic) consensus forecast and closing the position on the rst post announcement day has an annual gross abnormal return of 16.56%, after correcting for market risk, size, book-to-market and price momentum effects. A key insight is that the profitability of the trading strategy stems from using robust forecasting methods and from focusing on the stocks with the most extreme predicted forecast errors. The trading strategies using least squares regression and/or focusing merely on the sign of the forecast error are not profitable.

Suggested Citation

  • Boudt, Kris & De Goeij, Peter & Thewissen, James & Van Campenhout, Geert, 2012. "The short term prediction of analysts' forecast error," Working Papers 2012/16, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  • Handle: RePEc:hub:wpecon:201216

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Kellie L. Maske & Garey C. Durden & Patricia E. Gaynor, 2003. "Determinants of Scholarly Productivity among Male and Female Economists," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 555-564, October.
    2. Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2008. "Analyzing Cost-Efficient Production Behavior Under Economies of Scope: A Nonparametric Methodology," Operations Research, INFORMS, vol. 56(1), pages 204-221, February.
    3. William Locke, 2005. "Integrating Research and Teaching Strategies: Implications for Institutional Management and Leadership in the United Kingdom," Higher Education Management and Policy, OECD Publishing, vol. 16(3), pages 101-120.
    4. Cinzia Daraio & Léopold Simar, 2005. "Introducing Environmental Variables in Nonparametric Frontier Models: a Probabilistic Approach," Journal of Productivity Analysis, Springer, vol. 24(1), pages 93-121, September.
    5. Baumol, William J, 1977. "On the Proper Cost Tests for Natural Monopoly in a Multiproduct Industry," American Economic Review, American Economic Association, vol. 67(5), pages 809-822, December.
    6. Fox, Kevin J & Milbourne, Ross, 1999. "What Determines Research Output of Academic Economists?," The Economic Record, The Economic Society of Australia, vol. 75(230), pages 256-267, September.
    7. Badin, Luiza & Daraio, Cinzia & Simar, Léopold, 2010. "Optimal bandwidth selection for conditional efficiency measures: A data-driven approach," European Journal of Operational Research, Elsevier, vol. 201(2), pages 633-640, March.
    8. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    9. repec:pal:jorsoc:v:59:y:2008:i:2:d:10.1057_palgrave.jors.2602445 is not listed on IDEAS
    10. Cinzia Daraio & Léopold Simar, 2007. "Conditional nonparametric frontier models for convex and nonconvex technologies: a unifying approach," Journal of Productivity Analysis, Springer, vol. 28(1), pages 13-32, October.
    11. De Witte, Kristof & Rogge, Nicky, 2011. "Accounting for exogenous influences in performance evaluations of teachers," Economics of Education Review, Elsevier, vol. 30(4), pages 641-653, August.
    12. Rogge, Nicky & De Witte, Kristof, 2009. "To publish or not to publish? On the aggregation and drivers of research performance," Working Papers 2009/42, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    13. Laurens Cherchye & Willem Moesen & Nicky Rogge & Tom Puyenbroeck, 2007. "An Introduction to ‘Benefit of the Doubt’ Composite Indicators," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 82(1), pages 111-145, May.
    14. L Cherchye & W Moesen & N Rogge & T Van Puyenbroeck & M Saisana & A Saltelli & R Liska & S Tarantola, 2008. "Creating composite indicators with DEA and robustness analysis: the case of the Technology Achievement Index," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(2), pages 239-251, February.
    15. Arocena, Pablo, 2008. "Cost and quality gains from diversification and vertical integration in the electricity industry: A DEA approach," Energy Economics, Elsevier, vol. 30(1), pages 39-58, January.
    16. Cazals, Catherine & Florens, Jean-Pierre & Simar, Leopold, 2002. "Nonparametric frontier estimation: a robust approach," Journal of Econometrics, Elsevier, vol. 106(1), pages 1-25, January.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Financial analysts; Forecast error; Short term prediction; Trading strategy;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hub:wpecon:201216. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Janssens). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.