A Positive Model of Earnings Forecasts: Top Down versus Bottom Up
Masako N. Darrough
City University of New York - Baruch College - Stan Ross Department of Accountancy
Santa Clara University - Department of Economics
Journal of Business, Vol. 75, No. 1, January 2002
This article analyzes the behavior of two groups of corporate earnings forecasters: analysts, who follow individual company fortunes, and market strategists, who predict earnings for various company aggregates. Using data for two market indices, the S&P 500 and the Dow Jones Industrial Average, we document that bottom-up forecasts are systematically more optimistic than top-down forecasts made by strategists. This difference is not driven by the difference in the forecast target. This finding may be explained by the incentives that analysts face and/or by cognitive bias.
JEL Classification: G14, G29, M41Accepted Paper Series
Date posted: February 17, 2002
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