Automated Earnings Forecasts: Beat Analysts or Combine and Conquer?

Management Science, Forthcoming

52 Pages Posted: 23 May 2017

See all articles by Ryan T. Ball

Ryan T. Ball

The Stephen M. Ross School of Business at the University of Michigan

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 22, 2017

Abstract

Prior studies attribute analysts' forecast superiority over time-series forecasting models to their access to a large set of firm, industry, and macroeconomic information (an information advantage), which they use to update their forecasts on a daily, weekly or monthly basis (a timing advantage). This study leverages recently developed mixed data sampling (MIDAS) regression methods to synthesize a broad spectrum of high-frequency data to construct forecasts of firm-level earnings. We compare the accuracy of these forecasts to those of analysts at short horizons of one-quarter or less. We find that our MIDAS forecasts are more accurate and have forecast errors that are smaller than analysts' when forecast dispersion is high and when the firm size is smaller. In addition, we find that combining our MIDAS forecasts with analysts' forecasts systematically outperforms analysts alone, which indicates that our MIDAS models provide information orthogonal to analysts. Our results provide preliminary support for the potential to automate the process of forecasting firm-level earnings, or other accounting performance measures, on a high-frequency basis.

Suggested Citation

Ball, Ryan T. and Ghysels, Eric, Automated Earnings Forecasts: Beat Analysts or Combine and Conquer? (May 22, 2017). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2972185

Ryan T. Ball (Contact Author)

The Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Eric Ghysels

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)

HOME PAGE: http://www.unc.edu/~eghysels/

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