An Empirical Study of Financial Analysts Earnings Forecast Accuracy
122 Pages Posted: 1 Apr 2017 Last revised: 2 Apr 2017
Date Written: May 29, 2016
Over the past 12 years, financial analysts across the world have been optimistically wrong with their 12-month earnings forecasts by 25.3%. This study may be the first of its kind to assess analyst earnings forecast accuracy at all listed companies across the globe, covering 70 countries. A review of prior research shows little uniformity in the preparation of the data set, yet differences in how outliers are treated, for example, can create substantially different results. This research lays out six specific steps to prepare the data set before any analysis is done.
Three main conclusions come from this research: First, analyst earnings forecasts globally were 25.3% optimistically wrong, meaning on average, analysts started each year forecasting company profits of US$125, but 12 months later that company reported profits of US$100. Second, analysts had a harder time forecasting earnings for companies in emerging markets, where they were 35% optimistically wrong. Third, that analyst optimism mainly occurred when the companies they forecasted experienced very low levels of actual earnings growth, analysts did not make an equal, but opposite error for fast growth companies.
Keywords: Analyst Earnings Forecast Accuracy, Financial Analysts, Experts, Sell-Side Analysts
JEL Classification: D80, G10, G14, G15, G24, G29, G32, G38, J44, L20, P50, M40, M41, M45
Suggested Citation: Suggested Citation