On the Origins of Forecast Walk-Downs: A Macro-to-Micro Perspective

Journal of Accounting, Auditing, and Finance

49 Pages Posted: 14 Aug 2018 Last revised: 5 Apr 2021

See all articles by Panos N. Patatoukas

Panos N. Patatoukas

Berkeley Haas

Ari Yezegel

Bentley University - Department of Accountancy

Jean Zeng

NUS Business School, National University of Singapore

Date Written: May 30, 2017

Abstract

We document a walk-down in GDP growth projections that is akin to that in sell-side analysts’ earnings forecasts. While the walk-down in earnings forecasts has been generally attributed to the strategic interplay between corporate managers and sell-side analysts, professional macro forecasters affiliated with the Federal Reserve are less susceptible to outside pressure to curry favor with managers. Our evidence shows that asymmetrically high forecasting difficulty in downturns relative to upturns of the U.S. economy is relevant in explaining the walk-down in macro forecasts. Without rejecting the expectations game between managers and sell-side analysts, our paper offers a more auspicious characterization of forecast walk-downs. An overarching implication is that research on the properties of sell-side analysts’ forecasts should consider strategic incentives for bias interacted with information about the state of the economy and heterogeneity in the cyclical exposure of individual firms.

Keywords: forecast walk-downs, macro forecasters, sell-side analysts

JEL Classification: E00, E30, E32, H32, M41

Suggested Citation

Patatoukas, Panos N. and Yezegel, Ari and Zeng, Jean, On the Origins of Forecast Walk-Downs: A Macro-to-Micro Perspective (May 30, 2017). Journal of Accounting, Auditing, and Finance, Available at SSRN: https://ssrn.com/abstract=3222884 or http://dx.doi.org/10.2139/ssrn.3222884

Panos N. Patatoukas (Contact Author)

Berkeley Haas ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

HOME PAGE: http://https://sites.google.com/berkeley.edu/panos

Ari Yezegel

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States
+1.781.891.2264 (Phone)

Jean Zeng

NUS Business School, National University of Singapore ( email )

15 Ken Ridge Drive
NUS Business School
Singapore, 129788

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