What is it about?
Combining analysts’ forecasts with earnings news can help you identify stock market winners. For example, when this year’s earnings exceed last year’s earnings and analysts raise their earnings forecast for next year, then the higher earnings are likely to last longer and signal future growth in earnings. On the other hand, when the analysts’ forecast contradicts the earnings news, as would happen if this year’s earnings exceeded last year’s earnings but analysts lowered their forecast for next year, then the higher earnings are likely only a one-time occurrence and not a signal of future growth. On caveat, this works only when the analysts issue their forecast for next year’s earnings within a day or two of the company earnings announcement.
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Why is it important?
Combining multiple timely sources of information about a company’s performance helps investors better predict future performance and pick stock market winners.
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This page is a summary of: The Effect of Analyst Forecasts During Earnings Announcements on Investor Responses to Reported Earnings, The Accounting Review, August 2016, American Accounting Association,
DOI: 10.2308/accr-51556.
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