Does forecast accuracy matter to security analysts?

Article Abstract:

A study examined the relationship between the accuracy of earnings forecast made by security analysts and their level of turnover to ascertain if these professionals are concerned with the accuracy of their predictions. Data was culled from a sample of 5,434 analyst-year combinations, which accounts for 1,607 analysts between 1985 and 1995. Findings demonstrated direct evidence of the importance of forecast accuracy to analysts. Analysts who are relatively less accurate than their peers were found to have a greater tendency to experience turnover. This result justifies the dependence of academics and investors on analyst forecasts. The study also found a low correlation between forecast accuracy and recommendation profitability. This implies that forecasting earnings and selecting stocks necessitate various skills, are influenced by external non-controllable factors, or are appraised and rewarded differentially by brokerage firms.

Securities Investment Advice, Forecasts and trends, Career changes, Earnings per share, Employee turnover

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An assessment of the relation between analysts' earnings forecast accuracy, motivational incentives and cognitive information search strategy

Article Abstract:

A three-part study was conducted to determine how accurate analysts' earnings forecasts are. In the first part, which focused on the interaction between forecast accuracy, cognitive information search strategy and incentives, 60 analysts were asked to make a forecast of earnings for a real firm. Data were gathered through an eye-movement retinal imaging computer technology. In the second stage, the focus was on the relation between the historical forecast accuracy of the analysts and the search strategy used in the first phase. In a post-experimental survey, the link between accuracy and the specific accounting information employed by the analysts was investigated. Findings revealed that more accurate analysts utilize a directive information search strategy while less accurate ones use a sequential search strategy. Motivational incentives were found to increase likelihood of giving optimistic earnings forecasts.

Investment Advisory Services, Cognition, Motivation (Psychology), Incentives (Business), Human information processing, Business forecasting

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When security analysts talk, who listens?

Article Abstract:

The study aims to find who trades on security analyst stock recommendations by investigating small and large investors' trading responses to analysts' reports. Large traders were found to consider the arguments found in the analyst's report more than small traders, as captured by the extensiveness of the recommendation revision and the extensiveness of the earnings forecast revision. Small traders have the tendency to react more to mere occurrence of the recommendation.

United States, Analysis, Influence, Trading companies, Investment analysis, Securities analysis, Securities trading

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