Publication Type

Journal Article

Publication Date

1-2018

Abstract

Event studies of market efficiency measure an earnings surprise with the consensuserror (CE), defined as earnings minus the average of professional forecasts. Even if asubset of forecasts can be biased, the ideal but difficult to estimate parameter-dependentalternative to CE is a nonlinear filter of individual errors that adjusts for bias. We showthat CE is a poor parameter-free approximation for this ideal measure. The fractionof misses on the same side (FOM), by discarding the magnitude of misses, offers a farbetterapproximation. FOM performs particularly well against CE in predicting thereturns of US stocks, where bias is potentially large, than that of international stocks.

Discipline

Finance | Finance and Financial Management

Research Areas

Finance

Publication

Journal of Finance

First Page

1

Last Page

79

ISSN

0022-1082

Identifier

10.2139/ssrn.2473366

Publisher

Wiley: No OnlineOpen

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

https://doi.org/10.2139/ssrn.2473366

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