Analysts' earnings per share forecasts: The effects of forecast uncertainty and forecast precision on investor judgements

• Main Author: GOH, Clarence
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: Analyst forecast; Earnings forecast; Forecast uncertainty; Investor judgement; Point earnings per share; Rounding; Accounting; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/soa_research/2019
• Institution: Singapore Management University

This study uses controlled experiments to investigate the joint effects of forecast uncertainty and forecast precision on investor judgements. It finds that forecast precision moderates the effects of forecast uncertainty on investors' forecast reliability judgements such that the effects of forecast uncertainty on investors' judgements of forecast reliability are more negative when an analyst's point earnings per share (EPS) forecast is rounded than when it is precise. In addition, the relationship between forecast precision and investors' judgements of forecast reliability is mediated by investors' perceptions of forecast attributes. The evidence also suggests that while forecast uncertainty exerts a negative effect on investment judgements, forecast precision does not play a role in mitigating these negative effects. Using a supplementary within-participants experiment, the study further finds that investors may not be consciously aware of how forecast precision influences their judgements of forecast reliability.