Analyst Forecast Accuracy: Do Ability, Resources and Portfolio Complexity Matter?

Abstract

Prior studies have identified systematic and time persistent differences in analysts' earnings forecast accuracy, but have not explained why the differences exist. Using the IBES Detail History database, this study finds that forecast accuracy is positively associated with analysts' experience (a surrogate for analyst ability and skill) and employer size (a surrogate for resources available), and negatively associated with the number of firms and industries followed by the analyst (measures of task complexity). The results suggest that analysts' characteristics may be useful in predicting differences in forecasting performance, and that market expectations studies may be improved by modeling these characteristics.