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| Author: | Han, B. H. Manry, D. Shaw, W. |
| Title: | Improving the Precision of Analysts' Earnings Forecasts by Adjusting for Predictable Bias |
| Journal: | Review of Quantitative Finance and Accounting
2001 : JUL, VOL. 17:1, p. 81-98 |
| Index terms: | FINANCE SECURITY BIAS ACCOUNTING |
| Language: | eng |
| Abstract: | This research demonstrates that publicly-available information can be used to develop estimates of analysts' optimistic bias in earnings forecasts. These bias estimates can be used to produce more accurate forecasts, resulting in significant reductions of both cross-sectional mean forecast error and error variance. When bias estimates are based on past observations of forecast error alone, however, reductions in mean forecast error are smaller, and forecast precision is unimproved. Further tests provide evidence of a significant association between returns and the bias predictable from contemporaneously- available information, suggesting that predictable bias is only partially discounted by market participants. |
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