Analysts’ earnings forecasts

Over the past decade, financial analysts worldwide have produced company earnings forecasts that were wrong by an optimistic excess of 25%. This paper is a descriptive review of analyst performance at providing company earnings forecast for all listed companies in the world. The universe is 74% comprised of developed market companies while the balance is made up from emerging countries. The average company size is US$5,541m.

Esta tese propõe-se a analisar os analistas de mercado de capitais de empresas brasileiras. Coletando informações do mercado e analisando o desempenho corrente das empresas, estes profissionais realizam projeções de resultados e fazem recomendações. Usando dados extraídos do sistema I/B/E/S, realiza-se uma abrangente pesquisa empírica das previsões e recomendações dos analistas, bem como de seu conteúdo informativo para o mercado brasileiro. O período de estudo foi entre janeiro 1995 a junho 2003. Inicialmente são discutidos conceitos e particularidades do modus operandi dos analistas de empresas brasileiras. A seguir, depois de uma revisão da literatura onde se documentam as principais contribuições e descobertas, procede-se a uma investigação da natureza dos erros de previsão dos analistas de empresas brasileiras. Características como a acurácia, viés e precisão das previsões dos analistas são apreciadas e contextualizadas em diferentes situações. Efetua-se um detalhamento analítico do conteúdo informativo dos diferentes tipos de revisões de previsões dos analistas e das surpresas provocadas pelo anúncio de resultados em desacordo com as expectativas. De modo geral, as revisões e as surpresas, na medida em que informarem o mercado, provocam variações de retornos. Encerra-se a tese com uma análise das recomendações dos analistas. Apura-se a distribuição percentual das recomendações, assim como os efeitos sobre os preços de recomendações de compra (buy) e de venda(sell). O desempenho das recomendações de consenso e o efeito das revisões de recomendações para cima (upgrade) e para baixo (downgrade) são exemplos de outros pontos analisados. ///// Analysing analysts: an empirical study of profit projections and capital market analysts' recommendations for Brazilian public companies -  Abstract : The main purpose of this thesis is to analyze the financial analysts of Brazilian firms. By gathering data from the market and analyzing the current performance of the firms, these professionals prepare earnings forecasts and stock recommendations. Using I/B/E/S database, it is presented a broad empirical research of the earnings forecasts and stock recommendations, as well as their information content for the Brazilian capital market. The empirical studies covered the period from January 1995 to June 2003. This thesis starts with the discussion of some concepts and the modus operandi of the financial analysts of Brazilian firms. After a literature review in the area, the empirical studies begin with the analysis of the earnings forecast errors. Some of their characteristics, such as accuracy, bias and precision are investigated in different contexts. After a critical analysis of the informational content for different types of earnings forecast revisions and actual announced earnings deviated form analysts expectations (earnings surprises), evidences of price effects in response to these facts are documented. The last part of this thesis discusses the role of stock recommendations in the Brazilian market. The percentage distribution of stock recommendations is verified as well as the informational content of stock recommendations. Other studies are carried out to verify the performance of the consensus stock recommendations and the effects of downgrades and upgrades of recommendations for Brazilian companies.

The aim of the paper is to show the potential of applying computational models of argument in the financial domain to the analysis of Earnings Conference Calls. We propose the formal description of ECC dialogue games: its locution rules and protocol. We also test its descriptive validity on an annotated corpus.

Using data from Thomson Reuters I/B/E/S, we investigated the statistical properties of analysts’ quarterly earnings projections in the years around the adoption of IFRS in Brazil (2007 to 2011).Characteristics such as accuracy, bias and precision of analysts’ forecasts are useful in different situations. The results indicate that the accuracy improved with increased coverage and for more profitable firms. Univariate and multivariate tests did not indicate significant changes in the accuracy and bias of the forecasts in the years around the adoption of IFRS.

The adoption of IFRS around the globe has stimulated empirical research that investigates the financial reporting and capital market effects associated with an accounting regime change. These studies differ in their analysis period, jurisdictional setting, and research design, and they report varying findings. We conduct a meta-analysis of IFRS adoption studies investigating financial reporting effects, namely value relevance and earnings transparency in the form of discretionary accruals, as well as capital market effects, specifically the quality of analysts' earnings forecasts. Our findings show that the value relevance of book value of equity has not increased post-IFRS adoption, whereas the value relevance of earnings has generally increased when assessed using price models. Our results also suggest that discretionary accruals have not reduced, but analysts' forecast accuracy has increased significantly post-IFRS adoption. Our findings are not affected materially after controlling for moderating factors including jurisdictional differences such as legal origin, the accounting and auditing enforcement regime, and differences between domestic GAAP and IFRS. However, these associations are moderated by the model used for empirical investigation of value relevance and discretionary accrual effects; they are also moderated by the adoption being voluntary or mandatory. The findings provide evidence to inform policy assessments and deliberations of the financial reporting and capital market effects of adopting IFRS.