The Impact of Economic Freedom on Analystss Forecasts Bias and Accuracy in Asian-Pacific Markets

Abstract

This paper studies the impact of economic freedom on analysts’ earnings forecast bias and accuracy by providing empirical evidence from 13 Asian-Pacific countries. Based on data from 2,759 firms over 10 years from January 2000 to December 2009, we find that overall economic freedom has positive impacts on analysts’ earnings forecast accuracy, implying that the higher (lower) the economic freedom, the lower (higher) the information asymmetry, the more accurate the analysts’ earnings forecasts. This study also finds analysts on average are over-optimistic, in particular for less economic freedom countries. We argue that the increase of economic freedom in a country should lessen the information asymmetric problems, and further reduce analysts’ earnings forecast bias.