Information in the Tails of the Distribution of Analysts’ Quarterly Earnings Forecasts
Financial Analysts Journal, Forthcoming
40 Pages Posted: 18 May 2016
Date Written: May 15, 2016
The business press generally reports news in quarterly earnings announcements based on the difference between actual earnings and two salient benchmarks: earnings of the same quarter in the previous year, and a consensus drawn from a distribution of forecasts by financial analysts. We evaluate the implications of a third salient benchmark: the most optimistic forecast when actual earnings exceed the consensus and the most pessimistic forecast when the consensus exceeds actual earnings. We find that considering the information in these tails of the distribution of analysts’ earnings forecasts enhances the profitability of earnings-based momentum trading strategies.
Keywords: earnings news, tail earnings forecasts, market efficiency, post-earnings announcement drift
JEL Classification: G10, G14, M40, M41
Suggested Citation: Suggested Citation