Improving the Precision of Analysts' Earnings Forecasts by Adjusting for Predictable Bias

This research demonstrates that publicly-available information can be used to develop estimates of analysts' optimistic bias in earnings forecasts. These bias estimates can be used to produce more accurate forecasts, resulting in significant reductions of both cross-sectional mean forecast error and error variance. When bias estimates are based on past observations of forecast error alone, however, reductions in mean forecast error are smaller, and forecast precision is unimproved. Further tests provide evidence of a significant association between returns and the bias predictable from contemporaneously-available information, suggesting that predictable bias is only partially discounted by market participants. This study has significant implications for researchers and investors. The pricing of predictable bias in analysts' forecasts may add error toinferences which are based on the association between returns and analyst forecast errors, and knowledge of the market's partial discounting of predictable bias may help investors to make more efficient resource allocations.     

THE SHARING OF MEANING BETWEEN ACCOUNTING STUDENTS AND MEMBERS OF THE ACCOUNTING PROFESSION

This study examines the extent to which accounting students and practising accountants share the same meanings of fundamental accounting concepts. In doing so, it provides evidence on the suitability of using accounting students as surrogates for accounting practitioners in the study of connotative meaning in accounting. Using the semantic differential technique, the “cognitive structure” (the structure within which meaning is held) as well as the positioning or placement of concepts within the structure were determined for both groups. Each group was found to have a similar cognitive structure (a three dimensional structure comparable to the classic structure found in the psychology literature, Osgood, Suci and Tannenbaum, 1957). However, the placement or positioning of concepts by students within that shared structure was significantly different to that of accounting practitioners.     

Issue costs and regulated returns: A general approach

This paper sets forth a general, unified procedure for the treatment of flotation costs for the regulated utility, a method which reduces to standard treatments as special cases. In this approach, the regulated return becomes a weighted average of the required rates on different portions of equity capital, portions that are distinguished by whether or not issue costs are incurred in their acquisition. In addition, the method provides solutions for a host of financial environments, including solutions where past flotation costs are to be recognized, and where merged utilities with different flotation-cost recovery patterns must be combined.     

Testing the capital asset pricing model efficiently under elliptical symmetry: a semiparametric approach

We develop new tests of the capital asset pricing model that take account of and are valid under the assumption that the distribution generating returns is elliptically symmetric; this assumption is necessary and sufficient for the validity of the CAPM. Our test is based on semiparametric efficient estimation procedures for a seemingly unrelated regression model where the multivariate error density is elliptically symmetric, but otherwise unrestricted. The elliptical symmetry assumption allows us to avoid the curse of dimensionality problem that typically arises in multivariate semiparametric estimation procedures, because the multivariate elliptically symmetric density function can be written as a function of a scalar transformation of the observed multivariate data. The elliptically symmetric family includes a number of thick‐tailed distributions and so is potentially relevant in financial applications. Our estimated betas are lower than the OLS estimates, and our parameter estimates are much less consistent with the CAPM restrictions than the corresponding OLS estimates. Copyright © 2002 John Wiley & Sons, Ltd.     

Financial Development, Financing Choice and Economic Growth

In an overlapping generations economy, households (lenders) fund risky investment projects of firms (borrowers) by drawing up loan contracts on the basis of asymmetric information. An optimal contract entails either the issue of only debt or the issue of both debt and equity according to whether a household faces a single or double enforcement problem as a result of its own decision about whether or not to undertake costly information acquisition. The equilibrium choice of contract depends on the state of the economy which, in turn, depends on the contracting regime. Based on this analysis, the paper provides a theory of the joint determination of real and financial development, with the ability to explain both the endogenous emergence of stock markets and the complementarity between debt finance and equity finance.     

SPECULATIVE CURRENCY ATTACKS AND BALANCE OF PAYMENTS CRISES

Abstract. This paper reviews the recent theoretical literature on collapsing exchange rate regimes. Using a combination of technique, intuition and realworld observation, we discuss the literature's main insights, point out some unresolved questions and offer suggestions for future research. The survey should be of interest to both specialists and non-specialists in the field of international macroeconomics.     

Property taxation and the demand for housing: An econometric analysis

There is disagreement among economists regarding the effect of a local increase in property taxation on the housing market. In defining the price of housing services studies of the demand for housing have treated the property tax exclusively as an excise tax on housing consumption. Two recent theoretical developments suggest this is a misrepresentation of the tax. One theory holds that the excise effects of property taxation may be shifted backward to the factors employed in the production of housing. The other theory concludes that the property tax is not an excise, but rather serves as an efficient price for local public services. To investigate these hypotheses, data from the Annual Housing Survey were employed to estimate a housing demand model which included the net effective property tax rate among the set of independent variables. In addition to revealing the property tax-housing demand relationship, the model provides more reliable estimates of income and price elasticities by eliminating specification errors found in previous studies. Results indicate that the property tax reduces the housing consumption of central city homeowners, but does not distort the suburban housing market.