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Analysts versus time-series forecasts of quarterly earnings: A maintained hypothesis revisited

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  • Pagach, Donald P.
  • Warr, Richard S.

Abstract

We re-examine the maintained hypothesis of analysts' quarterly earnings per share (EPS) superiority versus ARIMA time-series forecasts. While our empirical results are consistent with overall analysts' dominance, they suggest a more contextual interpretation of this important relationship. Specifically, we find that for a relatively large number of cases (approximately 40%) ARIMA time-series forecasts of quarterly EPS are equal to or more accurate than consensus analysts' forecasts. Moreover, the percentage of time-series superiority increases: (1) for longer forecast horizons, (2) as firm size decreases, and (3) for high-technology firms. Due to the data demands that ARIMA forecasting requires we also examine using a seasonal random walk (SRW) model that requires only one year of data to create quarterly forecasts. Although the ARIMA time-series model results in a significant reduction in sample size it dominates the SRW model. Our findings support the analyst dominance over time series models but suggest that ARIMA time-series models may provide useful input to researchers seeking quarterly EPS expectation models for certain types of firms.

Suggested Citation

  • Pagach, Donald P. & Warr, Richard S., 2020. "Analysts versus time-series forecasts of quarterly earnings: A maintained hypothesis revisited," Advances in accounting, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:advacc:v:51:y:2020:i:c:s0882611020300675
    DOI: 10.1016/j.adiac.2020.100497
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    More about this item

    Keywords

    Analysts' quarterly EPS forecasts; ARIMA models; Maintained hypothesis; Expectation models;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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