Model-Based Earnings Forecasts vs. Financial Analysts’ Earnings Forecasts

Posted: 11 Nov 2018

See all articles by Richard D. F. Harris

Richard D. F. Harris

University of Bristol

Pengguo Wang

Xfi, University of Exeter

Date Written: October 19, 2018

Abstract

Existing accounting-based forecasting models of earnings either do not fully consider information that is contained in stock prices or use an ad hoc specification that is not based on rigorous valuation theory. In this paper, we develop an earnings forecasting model built on the theoretical linkages between future earnings and stock prices as well as a number of accounting fundamental variables. We find that our model-based forecasts of earnings are in general less biased and more accurate than both existing model-based forecasts and analysts’ consensus forecasts, at both shorter and longer horizons. We also show that the accuracy of both model-based forecasts and financial analysts’ forecasts depend on firm-specific characteristics such as firm size and industry membership.

Keywords: Analysts’ Earnings Forecasts, Model-Based Earnings Forecasts, Forecast Horizons, Accuracy, Incremental Information, Firm Characteristics

Suggested Citation

Harris, Richard D. F. and Wang, Pengguo, Model-Based Earnings Forecasts vs. Financial Analysts’ Earnings Forecasts (October 19, 2018). British Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3269925

Richard D. F. Harris

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Pengguo Wang (Contact Author)

Xfi, University of Exeter ( email )

Streatham Court
Exeter, EX4 4PU
United Kingdom

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