Analysts versus Time-Series Forecasts of Quarterly Earnings: A Maintained Hypothesis Revisited

Abstract

We re-examine the maintained hypothesis of analysts’ quarterly earnings per share (EPS) dominance vis-a-vis ARIMA time-series forecasts. While our empirical results are consistent with overall analysts’ dominance, they suggest a much more contextual interpretation of this important relationship. Specifically, we find that for a relatively large number of cases (approximately 40%) ARIMA time-series forecasts of quarterly EPS are equal to or more accurate than consensus analysts’ forecasts, a finding that appears to be economically significant. Moreover, the percentage of time-series superiority increases: (1) across our holdout period (2000-2010), (2) for longer forecast horizons, (3) for small firms, (4) for high-technology firms, and (5) in those instances in which the forecasted quarterly EPS number is negative. At a minimum, our findings suggest a recharacterization of prior generalizations of overall analysts’ dominance while providing useful input to researchers seeking quarterly EPS expectation models for certain types of firms.