The Accuracy of Brokers' Profit Forecasts in the UK

A study was conducted to assess the accuracy of UK stockbrokers in forecasting firm profits. Profit forecast data from brokers' circulars, compiled by 58 brokerage firms for 171 separate businesses, were compared to forecasts derived using 3 simple forecasting models in which: 1. profits grow c...

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Bibliographic Details
Published in:Accounting and business research 1984-03, Vol.14 (54), p.113-124
Main Authors: Bhaskar, K. N., Morris, R. C.
Format: Article
Language:English
Subjects:
Accuracy
Comparative studies
Profits
Profits forecasting
Stock brokers
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Summary:A study was conducted to assess the accuracy of UK stockbrokers in forecasting firm profits. Profit forecast data from brokers' circulars, compiled by 58 brokerage firms for 171 separate businesses, were compared to forecasts derived using 3 simple forecasting models in which: 1. profits grow compoundly at the most recent profit increase percentage, 2. profits grow at the absolute rate of the most recent profit increase, or 3. profits remain constant. While brokers tended to underestimate profits, their forecasts were found to be more accurate than those derived with any of the 3 simple models, with average error ranging between 10% and 15%. Univariate analysis of the variables influencing forecasting accuracy indicated that accuracy was related to firm size, forecasting interval, and industry category; however, these relationships were not upheld in multivariate analysis. The results suggest that brokers' profit forecasts should be helpful to investors, and that their accuracy may be improved only through the use of sophisticated time-series models.
ISSN:0001-4788
2159-4260
DOI:10.1080/00014788.1984.9729198