An Analysis of Earnings per Share Forecasts for Stocks Listed on the Stockholm Stock Exchange

Abstract

This paper focuses on the information conveyed by financial analysts' earnings per share forecasts for publicly traded stocks. The results provide evidence of good predictive power, especially for short forecast horizons of one and three months. Observations of stock price reactions to the publication of these forecasts indicate that the forecasts mostly reflect information already known by the market. However, a significant stock price reaction is found for large changes in EPS forecasts. The stock price reaction in such cases usually occurs immediately after publication and is generally not large enough to produce profit opportunities, even for investors who have prior knowledge of the forecasts.