Automated Earnings Forecasts: Beat Analysts or Combine and Conquer?
Management Science, Forthcoming
52 Pages Posted: 23 May 2017
There are 2 versions of this paper
Automated Earnings Forecasts: Beat Analysts or Combine and Conquer?
Automated Earnings Forecasts:- Beat Analysts or Combine and Conquer?
Date Written: May 22, 2017
Abstract
Prior studies attribute analysts' forecast superiority over time-series forecasting models to their access to a large set of firm, industry, and macroeconomic information (an information advantage), which they use to update their forecasts on a daily, weekly or monthly basis (a timing advantage). This study leverages recently developed mixed data sampling (MIDAS) regression methods to synthesize a broad spectrum of high-frequency data to construct forecasts of firm-level earnings. We compare the accuracy of these forecasts to those of analysts at short horizons of one-quarter or less. We find that our MIDAS forecasts are more accurate and have forecast errors that are smaller than analysts' when forecast dispersion is high and when the firm size is smaller. In addition, we find that combining our MIDAS forecasts with analysts' forecasts systematically outperforms analysts alone, which indicates that our MIDAS models provide information orthogonal to analysts. Our results provide preliminary support for the potential to automate the process of forecasting firm-level earnings, or other accounting performance measures, on a high-frequency basis.
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