Abstract
This paper analyzes the behavior of two groups of corporate earnings forecasters: analysts, who follow individual company fortunes, and strategists who predict earnings for various company aggregates. Using data for two market indices, the S&P 500 and the Dow Jones Industrial Average, we find that the consensus analyst forecast (the bottom up forecast) is systematically more optimistic than the (top down) forecast of the strategists. This difference is not driven by the difference in the forecast target. Our finding is consistent with the psychological propensity for insiders to be more optimistic. The finding has implications for the design of more accurate earnings forecasts.
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