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Understanding the Biases in Analyst Forecasts

Thomas D. Dowdell Jr.

North Dakota State University

May 5, 2006

Researchers have examined the relation between expected growth and analyst forecast bias and found mixed evidence, in that forecast bias differs significantly between high-growth and low-growth firms when the P/B ratio is used to measure expected growth, but not when the P/E ratio is used in this capacity. In this paper, I use P/B and P/E ratios jointly to more precisely investigate the relation of expected growth with forecast errors. I observe that the relation between P/E and forecast errors depends on the P/B level, explaining the low overall relation between P/E and forecast errors found in previous studies.

Number of Pages in PDF File: 47

Keywords: price-to-book ratio, price-to-earnings ratio, analyst forecasts

JEL Classification: G29, G12, M41

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Date posted: August 19, 2006  

Suggested Citation

Dowdell, Thomas D., Understanding the Biases in Analyst Forecasts (May 5, 2006). Available at SSRN: https://ssrn.com/abstract=925028 or http://dx.doi.org/10.2139/ssrn.925028

Contact Information

Thomas D. Dowdell Jr. (Contact Author)
North Dakota State University ( email )
Department of Accounting & Information Systems
Minard Hall
Fargo, ND 58105
United States
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References:  26