Consensus Analysts' Forecasts and Current Price Level

Abstract

This paper attempts to shed light on the issue whether investors' earnings expectations completely align with analysts' forecasts. I find that current price level is not significantly correlated with one‐year‐out realized earnings, but, it is significantly correlated with two‐year‐out, three‐year‐out, four‐year‐out and five‐year‐out realized earnings after I control for analysts' forecasts (and current earnings). Current price is found to be useful in improving the accuracy of long‐term analyst consensus forecasts. My findings are consistent with the notion that the market's near term expectation closely follows analyst forecasts while the market's long‐term expectation contains more information than analyst consensus forecasts.

Citation

Zhang, H. (2002), "Consensus Analysts' Forecasts and Current Price Level", Review of Accounting and Finance, Vol. 1 No. 1, pp. 39-56. https://doi.org/10.1108/eb026978