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Relative Accuracy of Judgmental and Extrapolative Methods in Forecasting Annual Earnings


  • JS Armstrong

    (The Wharton School - University of Pennsylvania)


This paper identifies and analyses previously published studies on annual earnings forecasts. Comparisons of forecasts produced by management, analysts, and extrapolative techniques indicated that: (1) management forecasts were superior to professional analyst forecasts (the mean absolute percentage errors were 15.9 and 17.7, respectively, based on five studies using data from 1967-1974) and (2) judgmental forecasts (both management and analysts) were superior to extrapolation forecasts on 14 of 17 comparisons from 13 studies using data from 1964- 1979 (the mean absolute percentage errors were 21.0 and 28.4 for judgment and extrapolation, respectively). These conclusions, based on recent research, differ from those reported in previous reviews, which commented on less than half of the studies identified here.

Suggested Citation

  • JS Armstrong, 2004. "Relative Accuracy of Judgmental and Extrapolative Methods in Forecasting Annual Earnings," General Economics and Teaching 0412007, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpgt:0412007
    Note: Type of Document - pdf; pages: 11

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    References listed on IDEAS

    1. Jaffe, Jeffrey F, 1974. "Special Information and Insider Trading," The Journal of Business, University of Chicago Press, vol. 47(3), pages 410-428, July.
    2. Copeland, Ronald M & Marioni, Robert J, 1972. "Executives' Forecasts of Earnings per Share versus Forecasts of Naive Models," The Journal of Business, University of Chicago Press, vol. 45(4), pages 497-512, October.
    3. Finnerty, Joseph E, 1976. "Insiders and Market Efficiency," Journal of Finance, American Finance Association, vol. 31(4), pages 1141-1148, September.
    4. repec:bla:joares:v:15:y:1977:i:2:p:226-244 is not listed on IDEAS
    5. Kamin, J. Y. & Ronen, J., 1978. "The smoothing of income numbers: Some empirical evidence on systematic differences among management-controlled and owner-controlled firms," Accounting, Organizations and Society, Elsevier, vol. 3(2), pages 141-157, June.
    6. Philip Brown & Victor Niederhoffer, 1968. "The Predictive Content of Quarterly Earnings," The Journal of Business, University of Chicago Press, vol. 41, pages 488-488.
    7. repec:bla:joares:v:17:y:1979:i:2:p:316-340 is not listed on IDEAS
    8. repec:bla:joares:v:17:y:1979:i:1:p:140-155 is not listed on IDEAS
    9. Barefield, Russell M. & Comiskey, Eugene E., 1975. "The accuracy of analysts' forecasts of earnings per share," Journal of Business Research, Elsevier, vol. 3(3), pages 241-252, July.
    10. Fried, Dov & Givoly, Dan, 1982. "Financial analysts' forecasts of earnings : A better surrogate for market expectations," Journal of Accounting and Economics, Elsevier, vol. 4(2), pages 85-107, October.
    11. Brown, Lawrence D & Rozeff, Michael S, 1978. "The Superiority of Analyst Forecasts as Measures of Expectations: Evidence from Earnings," Journal of Finance, American Finance Association, vol. 33(1), pages 1-16, March.
    12. repec:bla:joares:v:18:y:1980:i:2:p:390-406 is not listed on IDEAS
    13. J. G. Cragg & Burton G. Malkiel, 1968. "The Consensus And Accuracy Of Some Predictions Of The Growth Of Corporate Earnings," Journal of Finance, American Finance Association, vol. 23(1), pages 67-84, March.
    14. Chant, Peter D, 1980. " On the Predictability of Corporate Earnings Per Share Behavior," Journal of Finance, American Finance Association, vol. 35(1), pages 13-21, March.
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    Cited by:

    1. JS Armstrong & Fred Collopy, 2004. "Integration of Statistical Methods and Judgment for Time Series," General Economics and Teaching 0412024, University Library of Munich, Germany.

    More about this item


    Annual; financial forecasts; Judgment vs. extrapolation; Management vs. analyst Amalgamated forecasts;

    JEL classification:

    • A - General Economics and Teaching

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