The Characteristics of Individual Analysts' Forecasts in Europe

Abstract

This study investigates the determinants of European financial analysts' forecasts differential accuracy. We find that European financial analysts forecast accuracy is positively associated with analyst firm specific experience and the number of companies covered by the analysts. Forecast accuracy is negatively associated with analysts' job experience, the number of countries for which they provide forecasts and the size of the brokerage house they work for. We partly attribute the bad relative forecast accuracy of analysts who work for important brokerage houses to a "local" disadvantage these analysts face relative to their peers who work for medium- and small-sized local brokerage houses. We attribute the absence of learning to the lack of incentive provided to analysts to produce accurate earnings forecasts by the labour market for financial analysis in Europe.

Keywords: Financial Analysts; Forecast Accuracy; Local Advantage; Incentives; Labour Market

JEL Classification: G24, J44