The Use of Multiple Instruments for Measurement of Earnings Forecast Errors, Firm Size Effect and the Quality of Analysts' Forecast Errors

An instrumental variables framework was developed to form a better proxy for earnings forecast errors. The key aspect of the approach was to extract information from alternative proxies for the same underlying variable, namely a portion of realized earnings signals unexpected by the market. Signs of...

Full description

Saved in:
Bibliographic Details
Published in:Journal of business finance & accounting 1994-07, Vol.21 (5), p.707-728
Main Authors: Chung, Hay Y, Kim, Jeong-Bon
Format: Article
Language:English
Subjects:
Accounting
Earnings
Earnings forecasting
Economic models
Errors
Forecasts
Proxies
Size of enterprise
Statistical analysis
Studies
Time series
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:An instrumental variables framework was developed to form a better proxy for earnings forecast errors. The key aspect of the approach was to extract information from alternative proxies for the same underlying variable, namely a portion of realized earnings signals unexpected by the market. Signs of various proxies are used for earnings forecast errors obtained from different time-series forecasting models as multiple instruments. The results showed that the instrumental variables approach is effective for reducing measurement errors inherent in various proxies for earnings forecast errors. It produces not only a smaller magnitude, but also a narrower dispersion of earnings forecast errors.
ISSN:0306-686X
1468-5957