ARE ANALYSTS ALL ALIKE? IDENTIFYING EARNINGS FORECASTING ABILITY

Louis K. C. Chan, David Ikenberry, Josef Lakonishok and Sangwoo Lee

Investors and the financial media apparently believe that some Wall Street equity analysts’ research is superior to others’. We examine whether such quality differentials exist, in terms of analysts’ ability to forecast earnings accurately, and whether these differentials are identifiable on an ex ante basis. The results suggest that there is some persistence in analysts’ forecast accuracy. In particular, forecast accuracy is associated with analyst experience, breadth of coverage, timeliness, and brokerage firm size. Analysts selected for All-Star status by industry publications also tend to have higher forecast accuracy. However, the differences in forecast accuracy do not produce material differences in the dollar magnitudes of forecast errors.