IBES optimism
Posted: 20 September 2011 09:40 PM   [ Ignore ]
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First, this website is very helpful to young accounting researchers. I think the best way to learn research is by discussion, and online forum could be a very good way to do it.

Here is the question: some one told me that when we use IBES data, we need to be careful, some of them are not so trustable. when we use this data for a paper, we need to filter the data, then use it.
I want to confirm with you guys, is this true? can you gave a paper about this topic? i didn’t have the intuition about this.

Thanks!!!

BTW, i am a first year accounting phd student.

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Zenghui
A humble student of business

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Posted: 21 September 2011 09:02 AM   [ Ignore ]   [ # 1 ]
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Hi Zenghui,

Analysts’ forecasts suffer from an ‘optimism’ bias.

A good starting point is Kothari (2001), on pages 152-160 there is an overview of analyst forecasts literature.
(Kothari, S., 2001. Capital markets research in accounting. Journal of Accounting and Economics 31(1-3): 105-231.)

A paper that I quite like is Richardson et al. 2004. It shows how analysts can be optimistic while at the same time allow firms to meet the analysts forecasts. (long term forecasts are revised downwards over time)
Richardson, S., S. Teoh, and P. Wycoki, 2004. The Walk-down to Beatable Analyst Forecasts: The Role of Equity Issuance and Insider Trading Incentives. Contemporary Accounting Research 21(4): 885–924.

Analysts forecasts are used to proxy for market expectations; the ‘candidates’ for such a measure include:
- past earnings, assuming a ‘random walk’ (possible including mean reversion), drawback being the simplicity and ‘new’ information that analysts can incorporate into their forecast is not used (adding stock return as control may mitigate this)
- actual earnings, observed in hindsight - drawback being that new information may bias actuals ‘away’ from unobserved expectations
- analyst forecasts, suffering from analyst optimism bias

I am not aware of papers that ‘undo’ the optimism and compute an unbiased analyst forecast measure.

best regards,

Joost

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