A Comparative Analysis of Earnings Forecasts in Europe
Posted: 7 Oct 1996
Date Written: August 1996
Abstract
This paper examines the accuracy of European analysts' forecasts of corporate earnings. The analysis is based on a large sample of individual forecasts of annual earnings for years ending in 1987 to 1992. The bias and accuracy of the analysts' forecasts in each country are contrasted and the results show that forecasts of Dutch and, to a lesser extent, UK and German firms' earnings are relatively accurate, and that forecasts of Austrian and Scandinavian firms' earnings are particularly poor. An analysis of the full sample and selected country specific sub-samples provide results that are consistent with optimistic forecasting and over- reaction to recent information when making forecasts, that forecasts based on the firm's share price and the market wide price earnings ratio have incremental predictive value beyond that of the analysts' forecasts, and revisions of forecasts made by analysts show a systematic tendency to reduce previously forecasted changes.
JEL Classification: G29, M41
Suggested Citation: Suggested Citation