Understanding analysts forecasts |
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Authors: | R J Louth P Joos G Weyns |
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Institution: | 1. Faculty of Economics , University of Cambridge , Sidgwick Avenue, Cambridge, CB3 9DD, UK;2. Morgan Stanley Asia Ltd , International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong, China;3. Morgan Stanley &4. Co. International plc. , 20 Bank Street, Canary Wharf, London, E14 4AD, UK |
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Abstract: | The purpose of this paper is to model analysts’ forecasts. The paper differs from the previous research in that we do not focus on how accurate these predictions may be. Accuracy may indeed be an important quality but we argue instead that another equally important aspect of the analysts’ job is to predict and describe the impact of jump events. In effect, the analysts’ role is one of scenario prediction. Using a Bayesian-inspired generalised method of moments estimation procedure, we use this notion of scenario prediction combined with the structure of the Morgan Stanley analysts’ forecasting database to model normal (base), optimistic (bull) and pessimistic (bear) forecast scenarios for a set of reports from Asia (excluding Japan) for 2007–2008. Since the estimation procedure is unique to this paper, a rigorous derivation of the asymptotic properties of the resulting estimator is also provided. |
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Keywords: | analysts’ reports price forecasts scenario prediction jump diffusions risk management |
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