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From Hindsight to Foresight: Understanding and Overcoming Bias in Financial Forecasts

Author

Listed:
  • Zweig Derek

    (Value Analytics, Pittsburgh, PA, USA)

  • Sumner Timothy

    (Value Analytics, Pittsburgh, PA, USA)

  • Luke Adam

    (Value Analytics, Pittsburgh, PA, USA)

Abstract

This study conducts a comprehensive benchmarking analysis on analyst forecasts of revenue and EBITDA for exchange-traded public companies in the U.S. spanning the period from 2009 to 2022. Our findings reveal a consistent and statistically significant upward bias present in both revenue and EBITDA forecasts, on average, as evidenced by various measures of forecast error. This bias is explored at both market sector and market-wide levels of aggregation to check for macro-consistency. Recognizing the significance of these biases, we propose bias-adjustment frameworks aimed at enhancing the accuracy of future analyst forecasts pertaining to revenue and EBITDA. The implications of our study underscore the importance of mitigating such biases for improved forecasting precision in financial markets.

Suggested Citation

  • Zweig Derek & Sumner Timothy & Luke Adam, 2024. "From Hindsight to Foresight: Understanding and Overcoming Bias in Financial Forecasts," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 19(1), pages 1-34.
    • Handle: RePEc:bpj:jbvela:v:19:y:2024:i:1:p:1-34:n:1002
    DOI: 10.1515/jbvela-2024-0011
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