Earnings Estimates and the Accuracy of Expectational Data

Edwin J. Elton · Martin J. Gruber

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Forecasting Techniques and Applications Auditing, Earnings Management, Governance Stock Market Forecasting Methods

Abstract

This paper examines the accuracy of forecasts produced by mechanical forecasting techniques and three groups of analysts. The nine mechanical forecasting techniques are variations of exponentially weighted moving averages, naive models, simple moving averages, and regressions. One-, two- and three-year forecasts are used to evaluate these techniques. The mechanical techniques exhibit statistically significant differences in their ability to forecast earnings per share, with the exponentially weighted moving averages producing the best forecasts. One-year forecasts produced by the best of the mechanical forecasting techniques were compared to the corresponding analysts' projections. No statistically significant difference could be discerned.

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References

1958The Cost of Capital, Corporation Finance and the Theory of Investment 1968The Information Content of Annual Earnings Announcements 1967Applied Economic Forecasting 1960Optimal Properties of Exponentially Weighted Forecasts 1963The Investment, Financing, and Valuation of the Corporation 1967Some Preliminary Findings on the Association between the Earnings of a Firm, Its Industry, and the Economy 1968THE CONSENSUS AND ACCURACY OF SOME PREDICTIONS OF THE GROWTH OF CORPORATE EARNINGS

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1980A Multivariate Analysis of Annual Earnings Forecasts Generated from Quarterly Forecasts of Financial Analysts and Univariate Time-Series Models 1995THE ACCURACY AND RATIONALITY OF EARNINGS FORECASTS BY UK ANALYSTS 1983Relative accuracy of judgemental and extrapolative methods in forecasting annual earnings 1986Managerial intervention in forecasting. An empirical investigation of forecast manipulation 1998Economic News and the Yield Curve: Evidence from the U.S. Treasury Market 1977Forecasting: Issues & Challenges for Marketing Management

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