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We propose a novel method to forecast corporate earnings which combines the accuracy of analysts' forecasts with the unbiasedness of a mechanical model. Our choice of variables is driven by recent insights from the earnings forecasts literature and the resulting model outperforms all analyzed methods in terms of accuracy, bias, and earnings respons...
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... order to analyze forecast bias over time, Figures 1 to 6 show the mean and median forecast bias for one-, two-, and three-year-ahead earnings forecasts. For the sake of clarity, we only include the raw analysts' forecasts, the combined model, and the benchmark model with forecast bias closest to zero in the figure. ...
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Citations
... Recently, earnings forecasts based on a cross-sectional model, which only requires firms' fundamental features such as accounting numbers, have emerged as an alternative method (Hou, van Dijk, & Zhang, 2012: hereafter HVZ). This method is widely applied to exploring the mean reversion characteristics of earnings (Fama & French, 2000), estimating the implied cost of capital (HVZ; Li & Mohanram, 2014), detecting market overreactions to analyst forecasts (So, 2013), and improving forecasts in connection with the differential persistence of earnings components (Call, Hewitt, Shevlin, & Yohn, 2016) or past analyst forecasts (Azevedo, Bielstein, & Gerhart, 2020). ...
