Financial Analysts' Forecast Precision: Swedish Evidence
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
The future is uncertain. We therefore make predictions and forecasts of the future in order to be able to plan and react to future events. For this purpose, financial analysts are argued to have a responsibility towards investors and the market, in helping to keep the market efficient. Given that financial analysts act in a rational way we argue that analysts should strive to maximize forecast accuracy. The purpose of this study is to investigate how accurate financial analysts’ forecasts of Swedish firms’ future values are, and what information that analysts use that significantly affect the analysts’ forecast accuracy. To investigate this we first examine whether financial analysts contribute with value to investors by comparing their forecast precision against a simple time-series model. Our findings show that financial analysts produce significantly more accurate forecasts than a time-series model in the short term. Furthermore, given that rational analysts act in their own best interest while making accurate forecasts, we argue that analysts will incorporate and use the information that is available to them for the purpose of maximizing forecast accuracy. We investigate this by testing if the analysts’ forecast accuracy is affected by; the forecast horizon, the number of analysts following a firm, the firm size, the corporate visibility, the predictability of earnings, and trading volume. We find that the forecast accuracy is better when the amount of analysts following a firm is high, the firm size is larger, the forecasted company’s corporate visibility in the news is more frequent, and the predictability of earnings is higher. The trading volume does not have a significant effect on analysts’ forecast accuracy. To conclude, we question the value of financial analysts’ forecasts for longer forecast horizons.
Place, publisher, year, edition, pages
2013. , 57 p.
Financial analysts, forecast precision, forecast accuracy, rationality, analysts' superiority, information availability, competitiveness, random walk model
IdentifiersURN: urn:nbn:se:uu:diva-202532OAI: oai:DiVA.org:uu-202532DiVA: diva2:632158
Subject / course
Master Programme in Social Sciences
UppsokSocial and Behavioural Science, Law