Forecasting the Macroeconomy: Analysts versus Economists

48 Pages Posted: 28 Dec 2012

See all articles by Rebecca N. Hann

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business

Maria Ogneva

University of Southern California - Marshall School of Business

Horacio Sapriza

Board of Governors of the Federal Reserve System

Date Written: December 27, 2012

Abstract

We investigate whether and to what extent aggregate earnings forecasts by sell-side analysts and forecasts of macroeconomic indicators by economists convey different information about the macroeconomy, and whether such differences have implications for forecast efficiency and the stock market. We find that the two sets of forecasts strongly covary over the 1984 to 2010 period, suggesting that they contain a non-trivial amount of common macroeconomic information. We also find that while real GDP growth forecasts have incremental predictive ability over aggregate earnings forecasts with respect to future aggregate earnings, the converse is not true. Additional tests suggest that analysts underreact to economists’ negative forecast revisions (i.e., aggregate earnings forecast errors are predictably more negative following economists’ downward forecast revisions), with the extent of underreaction more pronounced for more procyclical and larger firms. The stock market does not appear to see through such inefficiency — the market returns surrounding the first few “bellwether” firms’ earnings announcements are predictably more negative following quarters with more negative macroeconomic forecast revisions. Finally, we show that an “adjusted” aggregate earnings forecast that incorporates macroeconomic forecast revisions performs marginally better in terms of forecast accuracy and efficiency.

Keywords: Macroeconomy, earnings, economists, financial analysts, inefficiency

JEL Classification: E37, E44, G17, G24, M41

Suggested Citation

Hann, Rebecca N. and Ogneva, Maria and Sapriza, Horacio, Forecasting the Macroeconomy: Analysts versus Economists (December 27, 2012). Available at SSRN: https://ssrn.com/abstract=2194179 or http://dx.doi.org/10.2139/ssrn.2194179

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Maria Ogneva (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Horacio Sapriza

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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