Analysts' earnings per share forecasts: The effects of forecast uncertainty and forecast precision on investor judgements

Publication Type

Journal Article

Publication Date

9-2023

Abstract

This study uses controlled experiments to investigate the joint effects of forecast uncertainty and forecast precision on investor judgements. It finds that forecast precision moderates the effects of forecast uncertainty on investors' forecast reliability judgements such that the effects of forecast uncertainty on investors' judgements of forecast reliability are more negative when an analyst's point earnings per share (EPS) forecast is rounded than when it is precise. In addition, the relationship between forecast precision and investors' judgements of forecast reliability is mediated by investors' perceptions of forecast attributes. The evidence also suggests that while forecast uncertainty exerts a negative effect on investment judgements, forecast precision does not play a role in mitigating these negative effects. Using a supplementary within-participants experiment, the study further finds that investors may not be consciously aware of how forecast precision influences their judgements of forecast reliability.

Keywords

Analyst forecast, Earnings forecast, Forecast uncertainty, Investor judgement, Point earnings per share, Rounding

Discipline

Accounting | Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Financial Intermediation and Information

Publication

Abacus

First Page

1

Last Page

33

ISSN

0001-3072

Identifier

10.1111/abac.12302

Publisher

Wiley: 24 months

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1111/abac.12302

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