The Forecast Accuracy of Individual Analysts: Evidence of Systematic Optimism and Pessimism

Abstract

O'Brien [1990] examines the annual earnings forecast accuracy of individual analysts reporting to the Institutional Brokers Estimate System (IBES) of Lynch, Jones and Ryan during July 1975-September 1982. Using a regression model which adjusts for average firm and year effects, O'Brien finds no evidence of differential forecast accuracy. Comparing individual analysts' earnings forecasts to median consensus forecasts during 1983-86, we also find no statistically significant evidence of differential analyst forecast accuracy. Our result, however, does not mean that one analyst's forecasts are much like another's. We find that analysts are persistently optimistic or pessimistic relative to consensus forecasts. We examine this persistent behavior and its effect on measures of forecast accuracy over a sample