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Evaluating the properties of analysts' forecasts: a bootstrap approach

Clatworthy, Mark Anthony, Peel, David A. and Pope, Peter F. 2007. Evaluating the properties of analysts' forecasts: a bootstrap approach. The British Accounting Review 39 (1) , pp. 3-13. 10.1016/j.bar.2006.08.002

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Abstract

Previous research has reported that analysts’ forecasts of company profits are both optimistically biased and inefficient. However, many prior studies have applied ordinary least-squares regression to data where heteroskedasticity and non-normality are common problems, potentially resulting in misleading inferences. Furthermore, most prior studies deflate earnings and forecasts in an attempt to correct for non-constant error variances, often changing the specification of the underlying regression equation. We describe and employ the wild bootstrap—a technique that is robust both to heteroskedasticity and non-normality—to assess the reliability of prior studies of analysts’ forecasts. Based on a large sample of 23,283 firm years covering the period 1981–2002, our main results confirm the findings of prior research. Our results also suggest that deflation may not be a successful method of correcting for heteroskedasticity, providing a strong rationale for using the wild bootstrap in future work in this, and other areas of accounting and finance research.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HF Commerce
H Social Sciences > HF Commerce > HF5601 Accounting
Uncontrolled Keywords: Analysts’ forecasts; Wild bootstrap; Deflation; Heteroskedasticity
Publisher: Elsevier
ISSN: 0890-8389
Last Modified: 09 Feb 2020 16:24
URI: http://orca.cf.ac.uk/id/eprint/38078

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