Uncertainty About Future Earnings as a Determinant of Bias in Analysts'Earnings Forecasts

Posted: 3 Jul 1998

See all articles by Bong-Heui Han

Bong-Heui Han

Ajou University

David Manry

University of New Orleans - College of Business Administration - Department of Accounting

Wayne Shaw

Southern Methodist University (SMU) - Accounting Department

Date Written: Undated

Abstract

Researchers have identified numerous factors associated with security analysts' optimistic bias, including size, earnings-to-price ratio, forecast dispersion, past returns, and past forecast errors. These factors are viewed as having future earnings uncertainty as a common attribute. Empirical evidence consistent with this view is presented. Using these factors as proxies for future earnings uncertainty, univariate tests show that analysts' bias increases as uncertainty increases. Multivariate tests indicate that each of the uncertainty proxies incrementally explains bias, after controlling for the other variables. A model is developed which significantly improves accuracy by reducing both forecast bias and forecast error variance in tests on holdout samples.

JEL Classification: G14, M41

Suggested Citation

Han, Bong-Heui and Manry, David and Shaw, Wayne H., Uncertainty About Future Earnings as a Determinant of Bias in Analysts'Earnings Forecasts (Undated). Available at SSRN: https://ssrn.com/abstract=2574

Bong-Heui Han

Ajou University ( email )

Woncheon-dong, Yeongtong-gu
Suwon-si, Gyeonggi-do
Korea, Republic of (South Korea)

David Manry (Contact Author)

University of New Orleans - College of Business Administration - Department of Accounting ( email )

2000 Lakeshore Drive
New Orleans, LA 70148-1530
United States
504-280-6432 (Phone)
504-280-6426 (Fax)

Wayne H. Shaw

Southern Methodist University (SMU) - Accounting Department ( email )

United States
214-768-3053 (Phone)

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