Financial Analysts’ Forecasts Have Improved Significantly in the Post-Reg FD Period
42 Pages Posted: 10 Mar 2021
Date Written: January 17, 2021
Reducing the amount of private information in corporate disclosures does not necessarily reduce the accuracy of analysts’ forecasts. This paper applies model-based earnings forecasts as a benchmark that is immune from disclosure of private information and evaluates the relative performance of analysts’ forecasts of earnings against the benchmark. It finds that the I/B/E/S consensus forecasts in general outperform the benchmark forecasts in the post-Reg FD period, while they underperform the benchmark in the pre-Reg FD period. It seems that Reg FD is a watershed. The difference-in-difference analysis confirms that the accuracy of analysts’ consensus forecasts of earnings has improved significantly following the passage of Reg FD.
Keywords: Analysts’ earnings forecasts, model-based earnings forecasts, forecast accuracy, corporate information disclosure
JEL Classification: G10, M41
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