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Author: Sundaresh Ramnath
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
This paper develops a taxonomy of research examining the role of financial analysts in capital markets. The paper builds on the perspectives provided by Schipper [Schipper, K. (1991). Analysts' forecasts. Accounting Horizons, 5, 105-131] and Brown [Brown, L. (1993). Earnings forecasting research: Its implications for capital markets research. International Journal of Forecasting, 9, 295-320]. We categorize papers published since 1992, describe the research questions addressed, and suggest avenues for further research in seven broad areas: (1) analysts' decision processes; (2) the nature of analyst expertise and the distributions of earnings forecasts; (3) the information content of analyst research; (4) analyst and market efficiency; (5) analysts' incentives and behavioral biases; (6) the effects of the institutional and regulatory environment (including cross-country comparisons); and (7) research design issues.
Author: Sundaresh Ramnath
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
This paper develops a taxonomy of research examining the role of financial analysts in capital markets. The paper builds on the perspectives provided by Schipper [Schipper, K. (1991). Analysts' forecasts. Accounting Horizons, 5, 105-131] and Brown [Brown, L. (1993). Earnings forecasting research: Its implications for capital markets research. International Journal of Forecasting, 9, 295-320]. We categorize papers published since 1992, describe the research questions addressed, and suggest avenues for further research in seven broad areas: (1) analysts' decision processes; (2) the nature of analyst expertise and the distributions of earnings forecasts; (3) the information content of analyst research; (4) analyst and market efficiency; (5) analysts' incentives and behavioral biases; (6) the effects of the institutional and regulatory environment (including cross-country comparisons); and (7) research design issues.
Author: Sundaresh Ramnath
Publisher: Now Publishers Inc
ISBN: 1601981627
Category : Business & Economics
Languages : en
Pages : 125
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Book Description
Financial Analysts' Forecasts and Stock Recommendations reviews research related to the role of financial analysts in the allocation of resources in capital markets. The authors provide an organized look at the literature, with particular attention to important questions that remain open for further research. They focus research related to analysts' decision processes and the usefulness of their forecasts and stock recommendations. Some of the major surveys were published in the early 1990's and since then no less than 250 papers related to financial analysts have appeared in the nine major research journals that we used to launch our review of the literature. The research has evolved from descriptions of the statistical properties of analysts' forecasts to investigations of the incentives and decision processes that give rise to those properties. However, in spite of this broader focus, much of analysts' decision processes and the market's mechanism of drawing a useful consensus from the combination of individual analysts' decisions remain hidden in a black box. What do we know about the relevant valuation metrics and the mechanism by which analysts and investors translate forecasts into present equity values? What do we know about the heuristics relied upon by analysts and the market and the appropriateness of their use? Financial Analysts' Forecasts and Stock Recommendations examines these and other questions and concludes by highlighting area for future research.
Author: Marius del Giudice Rodriguez
Publisher:
ISBN:
Category : Corporate profits
Languages : en
Pages : 132
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Book Description
This dissertation contains three self-contained chapters dealing with specific aspects of financial analysts' earnings forecasts. After recent accounting scandals, much attention has turned to the incentives present in the career of professional financial analysts. The literature points to several reasons why financial analysts behave overoptimistically when providing their predictions. In particular, analysts may wish to maintain good relations with firm management, to please the underwriters and brokerage houses at which they are employed, and to broaden career choice. While the literature has focused more on analysts' strategic behavior in these situations, less attention has been paid to the implications these factors have on financial analysts' loss functions. The loss function dictates the criteria that analysts use in order to build their forecasts. Using a simple compensation scheme in which the sign of prediction errors affect their incomes differently, in the first chapter we examine the implications this has on their loss function. We show that depending on the contract offered, analysts have a strict preference for under-prediction or over-prediction and the size of this asymmetric behavior depends on the parameter that governs the financial analyst's preferences over wealth. This is turn affects the bias in their forecasts. Recent developments in the forecasting literature allow for the estimation of asymmetry parameters after observing data on forecasts. Moreover, they allow for a more general test of rationality once asymmetries are present. We make use of forecast data from financial analysts, provided by I/B/E/S, and present evidence of asymmetries and weak evidence against rationality. In the second chapter we study the evolution over time in the revisions to financial analysts' earnings estimates for the 30 Dow Jones firms over a 20 year period. If analysts' forecasts used information efficiently, earnings revisions should not be predictable. However, we find strong evidence that earnings revisions can in fact be predicted by means of the sign of the last revision or by using publicly available information such as short interest rates and past revisions. We propose a three-state model that accounts for the very different magnitude and persistence of positive, negative and `no change' revisions and find that this model forecasts earnings revisions significantly better than an autoregressive model. We also find that our forecasts of earnings revisions predict the actual earnings figure beyond the information contained in analysts' earnings estimates. Finally, the empirical literature on financial analysts' forecast revisions of corporate earnings has focused on past stock returns as the key determinant. The effects of macroeconomic information on forecast revisions is widely discussed, yet rarely tested in the literature. In the third chapter, we use dynamic factor analysis for large data sets to summarize a large cross-section of macroeconomic variables. The estimated factors are used as predictors of the average analyst's forecast revisions for different sectors of the economy. Our analysis suggests that factors extracted from macroeconomic variables do, indeed, improve on the current model with only past stock returns. In trying to explain what drives financial analysts' forecast revisions, the factors representing the macroeconomic environment must be considered to avoid a potential omitted variable problem. Moreover, the explanatory power and direction of such factors strongly depend on the industry in question.
Author: Sundaresh Ramnath
Publisher:
ISBN:
Category :
Languages : en
Pages : 117
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Book Description
This paper reviews research regarding the role of financial analysts in capital markets. The paper builds on the perspectives provided by Schipper (1991) and Brown (1993). We categorize papers published mainly since 1992 and selectively discuss aspects of these papers that address or suggest key research topics of ongoing interest in seven broad areas: analysts' decision processes, the determinants of analyst expertise and distributions of individual analysts' forecasts, the informativeness of analysts' research outputs, analyst and market efficiency with respect to information, effects of analysts' economic incentives on their research outputs, effects of the institutional and regulatory environment (including cross-country comparisons), and the limitations of databases and various research paradigms.
Author: Tanja Klettke
Publisher: Springer Science & Business
ISBN: 3658056347
Category : Business & Economics
Languages : en
Pages : 120
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Book Description
Financial analysts provide information in their research reports and thereby help forming expectations of a firm’s future business performance. Thus, it is essential to recognize analysts who provide the most precise forecasts and the accounting literature identifies characteristics that help finding the most accurate analysts. Tanja Klettke detects new relationships and identifies two new determinants of earnings forecast accuracy. These new determinants are an analyst’s “general forecast effort” and the “number of supplementary forecasts”. Within two comprehensive empirical investigations she proves these measures’ power to explain accuracy differences. Tanja Klettke’s research helps investors and researchers to identify more accurate earnings forecasts.
Author: Elisa Cavezzali
Publisher:
ISBN:
Category :
Languages : en
Pages : 45
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Book Description
This paper investigates whether the geographical proximity of financial analysts to hubs of information and expertise can influence their forecasting accuracy. Recent studies show that the financial analyst forecasting process show a systematic difference in earnings forecast accuracy dependent on the geographical distance of analysts from the companies which they follow. The literature argues that local analysts issue more accurate forecasts because they have an informational advantage over analysts who are further away. Industrial centres can constitute important knowledge spillovers by creating formal and informal networks amongst firms and higher education and research institutions. In such a hub, information can easily flow and propagate. Our hypothesis is that physical proximity to these hubs, and not to the companies they follow, is an advantage for financial analysts, leading to the issue of more accurate forecasts. Using a sample of 205 observations related to 33 firms, across seven countries and ten sectors, our results are consistent with the hypothesis. Even though preliminary, and probably in part biased by sample selection issues, overall, the empirical evidence confirms the benefit of being part of a network, formal or informal, in which information, knowledge and expertise sharing can flow easily. We try to give some new evidence on what can cause variations in financial analyst accuracy by exploring these concepts, well known and analysed in other fields, but new in the context of financial analysts.
Author: John B. Guerard, Jr.
Publisher: Springer Science & Business Media
ISBN: 1461452392
Category : Business & Economics
Languages : en
Pages : 245
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Book Description
Forecasting—the art and science of predicting future outcomes—has become a crucial skill in business and economic analysis. This volume introduces the reader to the tools, methods, and techniques of forecasting, specifically as they apply to financial and investing decisions. With an emphasis on "earnings per share" (eps), the author presents a data-oriented text on financial forecasting, understanding financial data, assessing firm financial strategies (such as share buybacks and R&D spending), creating efficient portfolios, and hedging stock portfolios with financial futures. The opening chapters explain how to understand economic fluctuations and how the stock market leads the general economic trend; introduce the concept of portfolio construction and how movements in the economy influence stock price movements; and introduce the reader to the forecasting process, including exponential smoothing and time series model estimations. Subsequent chapters examine the composite index of leading economic indicators (LEI); review financial statement analysis and mean-variance efficient portfolios; and assess the effectiveness of analysts’ earnings forecasts. Using data from such firms as Intel, General Electric, and Hitachi, Guerard demonstrates how forecasting tools can be applied to understand the business cycle, evaluate market risk, and demonstrate the impact of global stock selection modeling and portfolio construction.
Author: Tatiana Fedyk
Publisher:
ISBN:
Category :
Languages : en
Pages : 30
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Book Description
Prior research on financial analyst' quarterly earnings forecasts has documented serial correlation in forecast errors. This paper examines the way serial correlation in quarterly earnings forecast errors varies with firm and analyst attributes such as the firm's industry and the analyst's experience and brokerage house affiliation. Finding that serial correlation in forecast errors is significant and seemingly independent of firm and analyst attributes, I model consensus forecast errors as an autoregressive process. I demonstrate that the model of forecast errors that best fits the data is AR(1), and use the obtained autoregressive coefficients to predict consensus forecast errors. Modeling the consensus forecast errors as an autoregressive process, the present study predicts future consensus forecast errors, and proposes a series of refinements to the consensus. These refinements were not presented in prior literature, and can be useful to financial analysts and investors.
Author: Michael Samonas
Publisher: John Wiley & Sons
ISBN: 1118921097
Category : Business & Economics
Languages : en
Pages : 242
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Book Description
Risk analysis has become critical to modern financial planning Financial Forecasting, Analysis and Modelling provides a complete framework of long-term financial forecasts in a practical and accessible way, helping finance professionals include uncertainty in their planning and budgeting process. With thorough coverage of financial statement simulation models and clear, concise implementation instruction, this book guides readers step-by-step through the entire projection plan development process. Readers learn the tools, techniques, and special considerations that increase accuracy and smooth the workflow, and develop a more robust analysis process that improves financial strategy. The companion website provides a complete operational model that can be customised to develop financial projections or a range of other key financial measures, giving readers an immediately-applicable tool to facilitate effective decision-making. In the aftermath of the recent financial crisis, the need for experienced financial modelling professionals has steadily increased as organisations rush to adjust to economic volatility and uncertainty. This book provides the deeper level of understanding needed to develop stronger financial planning, with techniques tailored to real-life situations. Develop long-term projection plans using Excel Use appropriate models to develop a more proactive strategy Apply risk and uncertainty projections more accurately Master the Excel Scenario Manager, Sensitivity Analysis, Monte Carlo Simulation, and more Risk plays a larger role in financial planning than ever before, and possible outcomes must be measured before decisions are made. Uncertainty has become a critical component in financial planning, and accuracy demands it be used appropriately. With special focus on uncertainty in modelling and planning, Financial Forecasting, Analysis and Modelling is a comprehensive guide to the mechanics of modern finance.
Author: Daniel Kreutzmann
Publisher: Logos Verlag Berlin GmbH
ISBN: 3832525297
Category : Business & Economics
Languages : en
Pages : 141
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Book Description
This thesis focuses on the three primitive value drivers of each company valuation model that is based on fundamental analysis: the discount rate, the expected future payoffs during the explicit forecasting period, and the terminal value at the end of the explicit forecasting period. While the first factor is analyzed theoretically by incorporating the government into the classical valuation framework, this thesis studies the other two factors by investigating forecasts made by professional investors, i.e. financial analysts. In the first part we show that the government's and the shareholders discount rate usually differ and analyze how the government's and shareholders different objectives lead to conflicts in the context of capital budgeting. The empirical part of this thesis shows that macroeconomic information is frequently used by financial analysts when updating their earnings expecations and that target price forecastsmade by financial analysts can be used to predict abnormal returns.
