The Predictability of Analyst Forecast Revisions

42 Pages Posted: 26 Jun 2017 Last revised: 14 Aug 2019

See all articles by Michael J. Jung

Michael J. Jung

University of Delaware - Accounting & MIS

Jessica Keeley

NYU Stern

Joshua Ronen

New York University (NYU) - Department of Accounting

Date Written: June 24, 2017


The most prevalent forecasts of firms’ long-term earnings issued by analysts are two-year-ahead earnings per share (EPS) estimates. When introduced by analysts, two-year-ahead EPS estimates set market expectations for firms’ future earnings. Subsequent revisions to these estimates are highly correlated with contemporaneous changes in stock prices. We examine whether such revisions are sufficiently predictable to enable investors to earn abnormal returns on hedged portfolios. We find that analyst forecast revisions are predictable and document an implementable strategy for investors. Consistent with investors’ fixation on unscaled EPS, the strategy earns positive abnormal returns using unscaled EPS revisions but not when revisions are scaled by the level of the EPS estimate or the stock price. Abnormal returns are found for firms with low analyst coverage, consistent with a greater initial mispricing from analyst optimism for firms with poorer information environments.

Keywords: analyst revisions, analyst forecasts, return predictability, stock returns

JEL Classification: M41

Suggested Citation

Jung, Michael J. and Keeley, Jessica and Ronen, Joshua, The Predictability of Analyst Forecast Revisions (June 24, 2017). Journal of Accounting, Auditing and Finance, July 2019, Vol. 34, No. 3, pp. 434-457.. Available at SSRN:

Michael J. Jung (Contact Author)

University of Delaware - Accounting & MIS ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Jessica Keeley

NYU Stern ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Joshua Ronen

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street, Suite 400
Suite 10-180
New York, NY 10012-1118
United States
212-998-4144 (Phone)
212-995-4599 (Fax)


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