Empirical Research On Financial Analysts' Earning Forecasts And Market Expectation

This paper studied if the financial analysts' earnings forecasts were more accurate and appropriate as the proxy of the market earning expectations,taking time series model forecasts as a reference,and discussed whether accuracy and the ability of representing the market earning expectations were two sides of a coin.Furthermore,this paper also examined whether individual and institutional investors took analysts'forecast differently in forming expectations.The empirical results showed that there were optimistic tendencies in analysts'earnings forecasts.Analysts' forecasts were more accurate than the time series model forecasts.On the whole,analysts' forecasting was better than the time series model forecasts as the proxy of the market earning expectations.The result confirmed the value of analysts' forecast from the perspective of investors and also provided empirical evidence for studies to choose analysts' forecast as the proxy of market earning expectation.Further examination,however,found that the accuracy of the forecast was not consistent with the ability of representing market expectation,and that investors' rely on the analyst's earnings forecasts may not because of accuracy.In addition,the empirical results revealed that the increase of the proportion of institutions holding played a negative role in analysts' forecast representing market expectation.At the end of this paper,we provided several advices for the regulators,financial analysts and investors based on the empirical findings,in order to build a more efficient and sophisticated market in China.