Is there statistical evidence to support claims that analysts include a positive bias in their earnings estimates?
Is there statistical evidence to support claims that analysts include a positive bias in their earnings estimates?
During the bull market of the 1990s, the news media and investor community started to question whether sell-side analysts incorporated an optimistic bias in their earnings forecasts. Given that analysts' compensation in part relied on trading volume generated by their research, there existed the potential incentive to capture trading volume by announcing their forecasts early or by supporting their firms' investment banking arms. In this case students use data on forecast errors for 11 companies to perform hypothesis testing and determine confidence intervals, considering whether forecast accuracy is affected by issues such as the number of analysts providing forecasts.
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