Quantifying the Effect of Information and Ability Spillovers on Analyst Earnings Forecast Accuracy

• In Event: Analysts and their forecasts

Abstract

In this paper we estimate the effect of information and ability spillovers on buy-side analysts’ quarterly EPS forecast accuracy. Using a model that relates mean peer group ability along with the analyst’s own innate ability to an analyst’s forecast accuracy, we find that spillover effects from peer analysts are large, positive, and statistically significant across economic sectors. Specifically, our estimates indicate that spillovers are between 70 to 100 percent as important as an analyst’s own ability when determining earnings forecast accuracy. These findings are robust to methods to control for outliers and to an alternative estimation period. Finally, we fail to find any interactive effect of spillovers based on analysts’ available resources but find that spillovers, in general, affect quarterly EPS forecast accuracy more for experienced analysts.

Authors

• Estelle (Yuan) Sun, Boston University

• Thaddeus Andrew Neururer, University of Akron