Value Line and I/B/E/S Earnings Forecasts
34 Pages Posted: 12 Dec 2001
Date Written: November 8, 2001
This paper compares Value Line and I/B/E/S analyst earnings forecasts in terms of accuracy, rationality, and as proxies for market expectations. Using more recent data and forming consensus forecasts from the I/B/E/S detail files, we reach different conclusions than Philbrick and Ricks , who found that Value Line provided more reliable actual EPS data, but forecasts from the two databases were of similar quality. We find that I/B/E/S actual quarterly EPS data are no longer less reliable than Value Line EPS data, and I/B/E/S quarterly earnings forecasts significantly outperform Value Line in terms of accuracy and as proxies for market expectations. We find that I/B/E/S forecasting superiority can be explained by the combination of I/B/E/S's timing advantage and the mitigation of idiosyncratic error through consensus building. We also evaluate long-term forecasts from both databases and find that I/B/E/S forecasts are less biased and more accurate. Our results have implications for research evaluating the information content of quarterly earnings announcements, research using long-term forecasts in valuation models, and research seeking to generalize evidence regarding Value Line analysts' forecasting behavior.
Keywords: Financial analysts' earnings forecasts, Value Line, I/B/E/S, Market earnings expectations, Forecasting databases
JEL Classification: D84, G12, G14, G24, G29, M41
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