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This research examines the accuracy of analyst forecasts and the presence of optimistic bias over time.

November 1, 1997Financial Analysts Journal255 citations

Analyst Forecasting Errors: Additional Evidence

Key Points

This research examines the accuracy of analyst forecasts and the presence of optimistic bias over time.
Analyzed historical data on analyst forecasting errors from 1985 to 1996.
Compared errors across different firms based on market capitalization and industry types.
Forecasting errors showed a decreasing trend from 1985 to 1996.
S&P 500 firms had smaller forecasting errors compared to other firms, with a notable absence of optimistic bias from 1993 to 1996.
Larger firms with more analyst coverage demonstrated smaller errors in forecasts.

Abstract

Analyst forecasting errors are approximately as large as Dreman and Berry (1995) documented, and an optimistic bias is evident for all years from 1985 through 1996. In contrast to their findings, I show that analyst forecasting errors and bias have decreased over time. Moreover, the optimistic bias in quarterly forecasts was absent for S (2) firms with comparatively large amounts of market capitalization, absolute value of earnings forecast, and analyst following; and (3) firms in certain industries.

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