ANALYSTS' EARNINGS FORECASTS OF SINGAPORE COMPANIES

Abstract

This study examines several aspects of financial analysts' earnings forecasts, the accuracy, the relationship with stock price behavior and the firm-specific attributes affecting the financial analysts' performance. This study also investigates the earnings surprise strategy that exploits the difference between the analysts' earnings forecasts and the real earnings. Data regarding financial analysts' earnings forecasts for Singapore listed firms are obtained from the International Brokers’ Estimate System (1/B/E/S). In general, this study supports the hypothesis that financial analysts' earnings forecasts are more accurate than the time-series predictions. The sign and the magnitude of earnings surprise derived from the analysts' earnings forecasts are also more highly correlated with the magnitude and sign of share price revision around the announcement date of earnings than those of the time-series models. In terms of the accuracy and the association with the stock price movement, the study concludes that financial analysts’ earnings forecasts can serve as a better surrogate for market expectation than the forecasts from the time-series models. In addition, this study confirms that the performance of the analysts' earnings forecasts is associated with certain firm-specific attributes, e.g., firm size, earnings uncertainty and analysts' attention. The investment strategy, based on earnings surprise derived from analysts' earnings forecasts, is also demonstrated to be useful within the sample analysis period.