Information in the Tails of the Distribution of Analysts’ Quarterly Earnings Forecasts

Financial Analysts Journal, Forthcoming

40 Pages Posted: 18 May 2016

See all articles by Philip B. Shane

Philip B. Shane

College of William & Mary; Monash University; Monash University - Department of Accounting

Cameron Truong

Monash University; Financial Research Network (FIRN)

Qiuhong Zhao

Texas A&M University-Corpus Christi-Department of Accounting

Date Written: May 15, 2016

Abstract

The business press generally reports news in quarterly earnings announcements based on the difference between actual earnings and two salient benchmarks: earnings of the same quarter in the previous year, and a consensus drawn from a distribution of forecasts by financial analysts. We evaluate the implications of a third salient benchmark: the most optimistic forecast when actual earnings exceed the consensus and the most pessimistic forecast when the consensus exceeds actual earnings. We find that considering the information in these tails of the distribution of analysts’ earnings forecasts enhances the profitability of earnings-based momentum trading strategies.

Keywords: earnings news, tail earnings forecasts, market efficiency, post-earnings announcement drift

JEL Classification: G10, G14, M40, M41

Suggested Citation

Shane, Philip B. and Truong, Cameron and Zhao, Qiuhong, Information in the Tails of the Distribution of Analysts’ Quarterly Earnings Forecasts (May 15, 2016). Financial Analysts Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2780173

Philip B. Shane (Contact Author)

College of William & Mary ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Monash University - Department of Accounting ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia

Cameron Truong

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Qiuhong Zhao

Texas A&M University-Corpus Christi-Department of Accounting ( email )

6300 Ocean Dr
Corpus Christi, TX 78412
United States

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