Analysts' forecast error : a robust prediction model and its short-term trading profitability
- Author
- Kris Boudt (UGent) , Peter de Goeij, James Thewissen and Geert Van Campenhout
- Organization
- Abstract
- This paper contributes to the empirical evidence on the investment horizon salient to trading based on predicting the error in analysts' earnings forecasts. An econometric framework is proposed that accommodates the stylized fact of extreme values in the forecast error series. We find that between 1998 and 2010, the strategy of taking a long (short) position in stocks with the most pessimistic (optimistic) I/B/E/S forecast has an annual risk-adjusted return of 16.56 per cent before transaction costs. The robust method used to predict this pessimism (optimism) and the one-week investment horizon are the key drivers of the strategy's profitability.
- Keywords
- EARNINGS FORECASTS, STOCK RETURNS, INFORMATION, ARBITRAGE, TESTS, BIAS, RECOMMENDATIONS, PREDICTABILITY, ANNOUNCEMENTS, LIQUIDITY, Financial analysts, Forecast error, Short-term prediction, Trading, strategy
Citation
Please use this url to cite or link to this publication: http://hdl.handle.net/1854/LU-8600218
- MLA
- Boudt, Kris, et al. “Analysts’ Forecast Error : A Robust Prediction Model and Its Short-Term Trading Profitability.” ACCOUNTING AND FINANCE, vol. 55, no. 3, Wiley-blackwell, 2015, pp. 683–715, doi:10.1111/acfi.12076.
- APA
- Boudt, K., de Goeij, P., Thewissen, J., & Van Campenhout, G. (2015). Analysts’ forecast error : a robust prediction model and its short-term trading profitability. ACCOUNTING AND FINANCE, 55(3), 683–715. https://doi.org/10.1111/acfi.12076
- Chicago author-date
- Boudt, Kris, Peter de Goeij, James Thewissen, and Geert Van Campenhout. 2015. “Analysts’ Forecast Error : A Robust Prediction Model and Its Short-Term Trading Profitability.” ACCOUNTING AND FINANCE 55 (3): 683–715. https://doi.org/10.1111/acfi.12076.
- Chicago author-date (all authors)
- Boudt, Kris, Peter de Goeij, James Thewissen, and Geert Van Campenhout. 2015. “Analysts’ Forecast Error : A Robust Prediction Model and Its Short-Term Trading Profitability.” ACCOUNTING AND FINANCE 55 (3): 683–715. doi:10.1111/acfi.12076.
- Vancouver
- 1.Boudt K, de Goeij P, Thewissen J, Van Campenhout G. Analysts’ forecast error : a robust prediction model and its short-term trading profitability. ACCOUNTING AND FINANCE. 2015;55(3):683–715.
- IEEE
- [1]K. Boudt, P. de Goeij, J. Thewissen, and G. Van Campenhout, “Analysts’ forecast error : a robust prediction model and its short-term trading profitability,” ACCOUNTING AND FINANCE, vol. 55, no. 3, pp. 683–715, 2015.
@article{8600218,
abstract = {{This paper contributes to the empirical evidence on the investment horizon salient to trading based on predicting the error in analysts' earnings forecasts. An econometric framework is proposed that accommodates the stylized fact of extreme values in the forecast error series. We find that between 1998 and 2010, the strategy of taking a long (short) position in stocks with the most pessimistic (optimistic) I/B/E/S forecast has an annual risk-adjusted return of 16.56 per cent before transaction costs. The robust method used to predict this pessimism (optimism) and the one-week investment horizon are the key drivers of the strategy's profitability.}},
author = {{Boudt, Kris and de Goeij, Peter and Thewissen, James and Van Campenhout, Geert}},
issn = {{0810-5391}},
journal = {{ACCOUNTING AND FINANCE}},
keywords = {{EARNINGS FORECASTS,STOCK RETURNS,INFORMATION,ARBITRAGE,TESTS,BIAS,RECOMMENDATIONS,PREDICTABILITY,ANNOUNCEMENTS,LIQUIDITY,Financial analysts,Forecast error,Short-term prediction,Trading,strategy}},
language = {{eng}},
number = {{3}},
pages = {{683--715}},
publisher = {{Wiley-blackwell}},
title = {{Analysts' forecast error : a robust prediction model and its short-term trading profitability}},
url = {{http://doi.org/10.1111/acfi.12076}},
volume = {{55}},
year = {{2015}},
}
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