Analysts' Earnings Forecasts and International Asset Allocation

16 Pages Posted: 27 Sep 1999

See all articles by Carel Huijgen

Carel Huijgen

University of Groningen - Faculty of Economics and Business

Auke Plantinga

University of Groningen

Date Written: August 1999

Abstract

The aim of this paper is to investigate whether financial analysts' earnings forecasts are informative from the viewpoint of allocating investments across different stock markets. Therefore we develop a bottom up country forecast indicator reflecting the analysts' prospects for specific stock markets.

Based on the available analysts' earnings forecasts in the Institutional Brokers Estimate System (I/E/B/S), we calculate a monthly country forecast indicator for the stock markets in Germany, France, Italy, The Netherlands, United Kingdom, and Switzerland over the period 1990 to 1994. The time-series correlations between the monthly value of the indicator and the stock market returns around the date of calculating the indicator show that stock returns rather precede than follow revisions in earnings forecasts. An investment strategy which is based on a monthly asset allocation to that stock market with the highest value of the country forecast indicator in the preceding month, gives a slight outperformance (around 3 percent excess return) compared to an equal allocation of funds to the stock markets involved.

JEL Classification: G11, G29, F21, M41

Suggested Citation

Huijgen, Carel A. and Plantinga, Auke, Analysts' Earnings Forecasts and International Asset Allocation (August 1999). Available at SSRN: https://ssrn.com/abstract=174168 or http://dx.doi.org/10.2139/ssrn.174168

Carel A. Huijgen

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands
+3150 363 7206 (Phone)

Auke Plantinga (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen
Netherlands
+31 50 363 3685 (Phone)

HOME PAGE: http://www.aukeplantinga.com

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