Sales Forecasting with Financial Indicators and Experts' Input

50 Pages Posted: 13 Nov 2008 Last revised: 18 Dec 2014

Vishal Gaur

Cornell University - Samuel Curtis Johnson Graduate School of Management

Nikolay Osadchiy

Emory University - Goizueta Business School

Sridhar Seshadri

Indian School of Business

Date Written: October 23, 2008

Abstract

We investigate how uncertainty in retail sales can be explained by the return on a financial market index. This information can be employed in forecasting, hedging, and risk management. Our forecasting model expresses the total sales of a retailer as a function of sales forecasts generated by equity analysts, the term of the forecast, and the return on an aggregate financial market index over the term of the forecast. Using a panel of annual firm-level sales forecasts for 97 retailers over 10 years, each year containing multiple forecasts of varying terms, we show that a large and significant part of the sales forecast errors is explained by market returns. Surprisingly, this information is not accounted for in the analysts’ forecasts. Therefore, we develop a method of augmenting sales forecasts with market returns thereby improving their accuracy. We conduct an extensive study of the model forecast updating performance and show that the accuracy improvement can exceed 15% in out-of-sample tests under various performance metrics, compared to both equity analysts and a standard time-series method. We also demonstrate the usefulness of the financial market data for operational hedging decisions.

JEL Classification: G29, G12, M30, M41

Suggested Citation

Gaur, Vishal and Osadchiy, Nikolay and Seshadri, Sridhar, Sales Forecasting with Financial Indicators and Experts' Input (October 23, 2008). Johnson School Research Paper Series No. #06-09; McCombs Research Paper Series No. IROM-08-09. Available at SSRN: https://ssrn.com/abstract=1300473 or http://dx.doi.org/10.2139/ssrn.1300473

Vishal Gaur (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Gaur/

Nikolay Osadchiy

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322
United States

HOME PAGE: http://www.bus.emory.edu/nosadch/

Sridhar Seshadri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

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