Saturday, February 23, 2008

A Great Review of Analyst Forecast Research

As most academics know, a good survey article is worth its weight in gold. So, here's a good one on analyst forecast research (you can send money later)

Sundaresh Ramnath, Steve Rock and Philip Shane have a piece in the 2008 International Journal Of Forecasting entitled "The Financial Analyst Forecasting Literature: A Taxonomy with Suggestions for Further Research." In it, they catalog and organize about 250 research articles on various facets of the equity analysis process done since 1992 (it builds on earlier pieces by Schipper (991) and Brown (1993)). They arrange their review into the following topics:
  • How do analysts make decisions (i.e. what information do they use, how does their environment affect them, etc...)
  • What is the nature of analysts expertise (i.e. how do you measure it, is there herding, etc...)
  • Information content (how informative are analysts forecasts, is there information in forecasts over an above other available information)
  • Market efficiency (how much is extant information reflected in forecasts, do stock prices reflect the info in forecasts, etc...)
  • What incentives or behavioral biases affect or are present in analyst forecasts
  • How does the regulatory environment affect the forecasting process
  • How statistically valid are analyst forecast studies?
All in all, it's a very thorough piece, and I suspect it'll end up being read and cited by quite academics. In particular, I'd recommend it to grad students who are trying to get up to speed on this very broad literature.

The IJF piece is for subscribers only, but there's an ungated version on SSRN here.

HT: CXO Advisory Group.