The role played by analyst long-horizoned earnings forecasts for enhancing the returns of investment portfolios?

Project Details


This research project examines the role played by security analyst long-horizoned earnings forecasts forenhancing the returns of investment portfolios. Prior studies provide evidence supporting the informationvalue of analyst forecasts and develop the valuation model based on analyst earnings forecasts. Thesestudies, however, typically exclude the long-horizoned earnings forecasts from their valuation models.Moreover, investment recommendations as well as recommendation changes are provided infrequently bythe analysts, with disproportionately fewer negative ratings. The short-horizoned forecasts, being subject tothe potential inaccuracy due possibly to the potential inclination of these forecasts towards (1) incorporatingdiscretionary accruals, (2) taking into consideration real earnings management, and (3) including temporarycomponents of earnings, may serve as a noisy measure for the investors to estimate firm intrinsic value.This project is in contrast with the extant studies, which show that analyst long-horizoned earnings forecastsare informative. Yet few, if any, of them further explores under what conditions are these forecasts more orless informative. Specifically, this research project examines whether and when these measures addsignificantly to the investment returns, investigating if the analysts are sophisticated enough to screenthrough (1) discretionary accruals, (2) real earnings management, and (3) temporary components ofearnings for the market. It aims to examine whether the long-horizoned forecasts are more correlated withfuture returns, whether these forecasts outperform the short-horizoned ones in identifying firms with highfuture security returns, whether such superiority is more pronounced for firms subject to earningsmanipulation, and whether the investors for firms subject to earnings manipulation more heavily rely onanalyst forecasts in interpreting the earnings surprises.
Effective start/end date1/02/1630/04/17


  • Analyst Earnings Forecasts
  • Discretionary Accruals Earnings Management
  • Real EarningsManagement
  • Investment Portfolio


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