Crowdsourcing Forecasts: competition for sell-side analysts?

• In Event: SESSION 3D: Financial Analysts and Forecasts

Abstract

Early research established both the superiority and resulting value of sell-side forecasts to capital market participants as well as the importance of forecasts to sell-side analysts. Recent research has begun to question the latter, and in this paper, we exploit a new data source of buy-side and independent analyst forecasts to revisit the former. Contrary to prior studies, we find buy-side and independent forecasts of both earnings and revenue are, on average, as accurate as the sell-side. Further, although we find buy-side and independent forecasts to be relatively more optimistic, on average, and particularly in short horizons, we find this is at least partially explained by the extreme pessimism of the sell-side’s final forecasts. Our market test confirms support for the superiority of the buy-side’s short-term forecasts. Finally, we find the differential revenue forecast bias result is concentrated in low analyst coverage firms.

Authors

• Rick Johnston, Purdue University

• Tony Kang, Oklahoma State University

• Michael Christopher Wolfe, Oklahoma State University