Analysts’ Long-Horizon Earnings Forecast Properties and Long-Horizon Macroeconomic Forecast Optimism

46 Pages Posted: 10 Mar 2016

See all articles by Mikhail Pevzner

Mikhail Pevzner

University of Baltimore - Merrick School of Business

Suresh Radhakrishnan

JSOM, University of Texas at Dallas

Chandra Seethamraju

Franklin Templeton Investments

Date Written: March 7, 2016

Abstract

We examine whether the properties of earnings forecasts – bias and dispersion are different across periods when macroeconomic forecasts are optimistic than non-optimistic, and whether this difference in analyst forecast optimism is stronger during recessionary periods. We find that the long-horizon earnings forecasts are more optimistically biased in periods when the macroeconomic forecasts are optimistically biased as well, and the bias is more pronounced during periods of recession. We also find that the long-horizon earnings forecast dispersion is lower in periods when the long-horizon macroeconomic forecasts are optimistic than in other periods. These results suggest that firms that meet or beat earnings forecasts when there is no recession and macroeconomic forecast is optimistic are likely to have opportunistically biased their long-term forecasts and walked them down, i.e. opportunistic; and that firms that meet or beat earnings forecasts when there is recession and macroeconomic forecast is optimistic are likely to be the ones that are positioned to perform well when the economy recovers. Consistent with this we find that premium for meeting or beating the analysts’ earnings forecasts is highest in periods when there is recession and macroeconomic forecasts are optimistic; and there is no premium when there is no recession and macroeconomic forecast is optimistic. Collectively, the results show the interaction between the macroeconomic outlook and firm-level forecast properties.

Suggested Citation

Pevzner, Mikhail and Radhakrishnan, Suresh and Seethamraju, Chandrakanth, Analysts’ Long-Horizon Earnings Forecast Properties and Long-Horizon Macroeconomic Forecast Optimism (March 7, 2016). Available at SSRN: https://ssrn.com/abstract=2744069 or http://dx.doi.org/10.2139/ssrn.2744069

Mikhail Pevzner (Contact Author)

University of Baltimore - Merrick School of Business ( email )

1420 N. Charles St.
Baltimore, MD 21201-5779
United States

Suresh Radhakrishnan

JSOM, University of Texas at Dallas ( email )

Mail Stop SM 41
800 West Campbell Road
Richardson, TX 75080
United States
972-883-4438 (Phone)
972-883-6811 (Fax)

Chandrakanth Seethamraju

Franklin Templeton Investments ( email )

Multi Asset Strategies
P.O. Box 997152
San Mateo, CA 95899-7152
United States

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