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A Contextual Evaluation of Composite Forecasts of Annual Earnings

Author

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  • Pieter T. Elgers

    (Department of Accounting, University of Massachusetts, Amherst, USA)

  • May H. Lo

    (Department of Accounting and Finance, Western New England University, USA)

  • Wenjuan Xie

    (Department of Accounting and Finance, University of New Hampshire, USA)

  • Le Emily Xu

    (Department of Accounting and Finance, University of New Hampshire, USA)

Abstract

This study addresses the impact of firm- and time-specific attributes on the accuracy of composite forecasts of annual earnings, constructed from time-series, price-based, and analysts' forecasts. The attributes examined include firm size, analysts' coverage, and time periods pre-dating and following the implementation of regulation fair disclosure. Our results indicate that the relative accuracy of the composite forecasts is time-specific. In the pre-regulation fair disclosure period, composite forecasts significantly outperform each of the three individual forecast sources. Moreover, the extent of improvement in accuracy of composite forecasts is significantly higher for the smaller and lightly-covered firms. Collectively, these results suggest that the predictive accuracy of composite forecasts is contextual.

Suggested Citation

  • Pieter T. Elgers & May H. Lo & Wenjuan Xie & Le Emily Xu, 2016. "A Contextual Evaluation of Composite Forecasts of Annual Earnings," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(03), pages 1-40, September.
    • Handle: RePEc:wsi:rpbfmp:v:19:y:2016:i:03:n:s0219091516500144
    DOI: 10.1142/S0219091516500144
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    References listed on IDEAS

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    Cited by:

    1. Tanja Lorenz & Carsten Homburg, 2018. "Determinants of analysts’ revenue forecast accuracy," Review of Quantitative Finance and Accounting, Springer, vol. 51(2), pages 389-431, August.

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