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This article investigates how the IMF WEO growth forecast revisions behave across different horizons and country groups. Our main findings suggest that (i) growth revisions in horizons closer to the actual are generally larger, more volatile, and more negative; (ii) on average, growth revisions are in the right direction, becoming progressively more responsive to forecast errors as horizons get closer to the actual year; (iii) growth revisions in systemic economies are relevant for growth revisions in all country groups; (iv) across vintages, revisions for a given time horizon are not autocorrelated; within vintages, they tend to be positively associated, suggesting a persistent perception of short‐term shocks; and (v) professional growth revisions are highly correlated. [ABSTRACT FROM AUTHOR]

While accounting research has extensively examined initial guidance disclosures, the disclosures that managers make when initial forecasts become materially inaccurate have received much less attention. These updates are unique because managers are communicating that their initial forecasts are no longer correct. In this context, we examine how earnings forecast withdrawals affect managers' reporting reputation, relative to earnings revisions and nondisclosure. While managers face immediate negative market consequences after withdrawals, they enjoy reputational benefits (in the form of improved credibility) in the long run when guidance updates resume. In contrast, reporting reputation does not improve for managers who revise forecasts or for those who choose not to update at all. Difference-in-differences analyses confirm this incremental boost to credibility that is associated with withdrawals. This evidence suggests disclosing what managers do not know may be as important as disclosing what they do know when building a reporting reputation. [ABSTRACT FROM AUTHOR]

Recent advances in the literature allow disentangling the pure information component from the interest rate component of US monetary policy surprises. This article quantifies the information revealed around FOMC announcements using forecast revisions from Blue Chip Economic Indicators. Following a typical central bank information shock, survey participants revise their now‐ and short‐term forecasts of both real GDP growth and the GDP deflator upwards, consistent with a shift of the aggregate demand curve along the aggregate supply curve. While now‐ and forecast revisions in real GDP growth are driven by negative central bank information shocks, those in the GDP deflator respond broadly symmetrically to good and bad news. [ABSTRACT FROM AUTHOR]

Previous research indicates that analysts' forecasts are superior to time series models as measures of investors' earnings expectations. Nevertheless, research also documents predictable patterns in analysts' forecasts and forecast errors. If investors are aware of these patterns, analysts' forecast revisions measured using the random walk expectation are an incomplete representation of changes in investors' earnings expectations. Investors can use knowledge of errors and biases in forecasts to improve upon the simple random walk expectation by incorporating conditioning information. Using data from 2005 to 2015, we compare associations between market-adjusted stock returns and alternative specifications of forecast revisions to determine which best represents changes in investors' earnings expectations. We find forecast revisions measured using a 'bandwagon expectations' specification, which includes two prior analysts' forecast signals and provides the most improvement over random-walk-based revision measures. Our findings demonstrate benefits to considering information beyond the previously issued analyst forecast when representing investors' expectations of analysts' forecasts. [ABSTRACT FROM AUTHOR]

Theoretically, accounting earnings could be used to estimate the intrinsic value of equity. If accounting earnings could be predicted accurately, then, so could be the value of equity, thereby, creating much less risk in equity investment. However, earnings surprises are common, and therefore so is the risk in equity investment. To quantify the risk in the investment implied from accounting earnings, I propose to use financial statements to construct abnormal sales growth rates (ABG) and abnormal changes in profit margins (ABPM) to measure the uncertainty embedded in the accounting earnings. I measure ABG (ABPM) as the difference between the current value of sales growth rate (profit margin) and its benchmark, a weighted value of the three preceding years' sales growth rate (profit margin). Then, I quantify whether and to what extent the news of ABG and ABPM are material enough to change the expected earnings (proxied by analysts' forecasted earnings revisions [FREV] and predicted unexpected earnings [UE], and future stock returns [SAR]). Fama--MacBeth regression results show that, together, solely ABPM and ABG could explain 8.2% (2.3%) (5.4%) of the variation of FREV (UE) (SAR). The risk-predictability of ABPM and ABG is robust to the presence of abnormal growth in net operating assets and accruals quality, which, suggested by previous literature, might influence unexpected earnings. Further contingent analyses indicate that the capital market reacts more strongly to the bad news embedded in the ABPM/ABG (with negative signs) than the good news in ABPM/ABG (with positive signs). [ABSTRACT FROM AUTHOR]

• Amihud's (2002) illiquidity measure is reported as a «measure of consensus belief among investors about new information» (Amihud, 2002) in the context of M&A transactions. • Amihud's (2002) illiquidity measure is a significant determinant of cumulative abnormal returns observed after M&A. • Amihud's (2002) illiquidity measure is consistent with financial analysts' forecast activity. • Amihud's (2002) illiquidity measure is a relevant proxy measure of price informativeness. • Absolute abnormal stock returns (first) and financial analyst activity (second) around M&A announcement are inversely related to price informativeness measured by Amihud's metric. In this study we shed a new light on Amihud's illiquidity measure, used here as a relevant «measure of consensus belief among investors about new information» (Amihud, 2002). This paper demonstrates the relevance of this new approach/ dimension in the context of M&A transactions. Using a large sample of M&A in the U.S., Canada and Europe over the 2000–13 period, we report that Amihud's (2002) measure is a significant determinant of cumulative abnormal returns observed after M&A. This metric is also consistent with financial analyst forecast activity and stands as a relevant proxy measure of price informativeness. [ABSTRACT FROM AUTHOR]

Income classification shifting involves misclassifying core expenses into non-core items to boost core earnings. Managers engage in classification shifting because they believe they can manage the perceptions of investors and financial analysts. We examine analysts' earnings forecasts to determine whether analysts can identify classification shifting ex post and how they respond to shifted income statement components. Analysts play a role as information intermediaries between firms and investors. We find that analysts respond less to increased core earnings from classification shifting. However, analysts fail to gauge the full impact of classification shifting, leading to more optimistically biased and less accurate forecasts. [ABSTRACT FROM AUTHOR]

Abstract: We examine the impact of analysts’ earnings per share (EPS) and cash flow per share (CPS) forecast revisions on the market for credit default swaps. We find that while the issuance of both EPS and CPS forecast revisions are inversely associated with changes in credit default swap (CDS) spreads, cash flow forecast revisions have a larger effect. We demonstrate that the relationship between CPS forecast revisions and CDS spreads tends to be stronger in cases of financial distress. We provide evidence that cash flow forecasts dominate earnings forecasts in some situations and that participants in the CDS market discriminate between analysts' forecast revisions and recommendation changes. [ABSTRACT FROM AUTHOR]

Abstract: This paper shows how to extract the density of information shocks from revisions of the Bank of England's inflation density forecasts. An information shock is defined in this paper as a random variable that contains the set of information made available between two consecutive forecasting exercises and that has been incorporated into a revised forecast for a fixed point event. Studying the moments of these information shocks can be useful in understanding how the Bank has changed its assessment of risks surrounding inflation in the light of new information, and how it has modified its forecasts accordingly. The variance of the information shock is interpreted in this paper as a new measure of ex ante inflation uncertainty that measures the uncertainty that the Bank anticipates information perceived in a particular quarter will pose on inflation. A measure of information absorption that indicates the approximate proportion of the information content in a revised forecast that is attributable to information made available since the last forecast release is also proposed. [ABSTRACT FROM AUTHOR]

This paper treats the post-earnings announcement drift. Precisely, it revisits the benefits announcement effect using various measurements of surprise unexpected earnings. In addition, this work tries to explain the persistence of post-earnings announcement drift on the financial markets using adapted methodology. The empirical study on the Tunisian stock market shows the persistence of the post-earnings announcement drift over the year 2013. It indicates that the observed post-earnings announcement drift seems to be due to the behavior of investors under psychological biases. This finding shows that the information provided by the prevision and revision of earnings forecasts is not immediately included in the price, but there is an anchoring bias in relation to the past earnings, as well as on the investor time of response to the new information provided by the market.

In fundamental analysis, increases (decreases) in the ratio of selling, general and administrative (SG&A) costs to sales (SG&A ratio) are perceived as negative (positive) signals regarding future firm performance. However, this interpretation focuses on the overall change in the SG&A ratio and ignores the underlying changes in the components of the ratio (sales and SG&A costs). Although prior research examines the changes in the SG&A ratio under some different circumstances, there is no study that examines all the ways that managers adjust costs in reaction to changes in sales. Therefore, I create six subsamples representing all possible combinations of changes in sales, SG&A costs, and the SG&A ratio and test whether changes in the SG&A ratio are informative about future earnings, analyst forecast revisions, and stock returns under these different circumstances. I find that changes in the SG&A ratio in four of my six subsamples provide information about changes in future earnings. I also find that analysts do not impound all of the information contained in the signals into their forecast revisions and in some cases investors appear to understand this fact. [ABSTRACT FROM AUTHOR]

Since 2007, Federal Open Market Committee (FOMC) policymakers have been publishing detailed numerical projections of macroeconomic series over the next 3 years. By testing whether the revisions to these projections are unpredictable, I find that FOMC's efficiency is generally accepted for inflation but often rejected for real economic variables, notably for the unemployment rate. The rejection is due to the strong autocorrelation of revisions, which may reflect information rigidity of FOMC's unemployment projections. The joint efficiency of the entire projection is accepted in most cases. [ABSTRACT FROM AUTHOR]

We document that the likelihood of an analyst following a supplier-customer firm pair increases with the strength of the economic ties along the supply chain, as measured by the percentage of the supplier's sales to the customer. Analysts who follow a covered firm's customer provide more accurate earnings forecasts for the supplier firm than analysts who do not. While both types of analysts respond to and incorporate the earnings news from the customer firm into their revisions of the supplier's earnings forecasts, supplier-customer analysts exhibit a larger improvement in their forecast accuracy for the supplier subsequent to the customer's earnings announcements, when compared to other analysts. Overall, the evidence suggests that supplier-customer analysts benefit from the informational complementarities along the supply chain and improve their forecast accuracy as a result. [ABSTRACT FROM AUTHOR]

ABSTRACT Recently developed structural models of the global crude oil market imply that the surge in the real price of oil between mid 2003 and mid 2008 was driven by repeated positive shocks to the demand for all industrial commodities, reflecting unexpectedly high growth mainly in emerging Asia. We evaluate this proposition using an alternative data source and a different econometric methodology. Rather than inferring demand shocks from an econometric model, we utilize a direct measure of global demand shocks based on revisions of professional real gross domestic product (GDP) growth forecasts. We show that forecast surprises during 2003-2008 were associated primarily with unexpected growth in emerging economies (in conjunction with much smaller positive GDP-weighted forecast surprises in the major industrialized economies), that markets were repeatedly surprised by the strength of this growth, that these surprises were associated with a hump-shaped response of the real price of oil that reaches its peak after 12-16 months, and that news about global growth predict much of the surge in the real price of oil from mid 2003 until mid 2008 and much of its subsequent decline. Copyright © 2012 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

This research studies the impact of improved forecasts on the members of a two-stage supply chain. The supplier builds capacity based on original forecast information, and the manufacturer places its order after observing improved (but imperfect) demand information. We study three types of wholesale price purchasing arrangements: (1) when the wholesale price is determined to be exogenous to the supply chain; (2) when the supplier sets the wholesale price; and (3) when the manufacturer sets the wholesale price. Although improved demand information reduces the demand uncertainty that the manufacturer faces, the manufacturer is constrained by the supplier's capacity decision. In all three cases, we show that improved information can decrease the supply chain's expected profit, even as the supplier's capacity increases with improved information. Because improved demand information always increases the centralized supply chain's expected profit, we present a contract that coordinates the channel and provides flexibility in dividing systemwide profit. [ABSTRACT FROM AUTHOR]

We present a comprehensive analysis of the association between stock returns, quarterly earnings forecast errors, and quarter-ahead and year-ahead earnings forecast revisions. We find that forecast errors and the two forecast revisions have significant effects on stock prices, indicating each conveys information content. Findings also show that the fourth quarter differs from other quarters—the relative importance of the forecast error (quarter-ahead forecast revision) is lower (higher). We also find a marked upward shift over time in the forecast error and forecast revision coefficients, consistent with the I/B/E/S database reflecting an improved quality of both earnings forecasts and actual earnings. [ABSTRACT FROM AUTHOR]

This article analyses the forecasts of inflation and GDP growth supplied by the individual respondents to the Bank of England's quarterly Survey of External Forecasters, 1996-2005, using a recently released dataset. This comprises a conventional incomplete panel dataset, with an additional dimension arising from the collection of repeated forecasts for the last quarter of each year. This fixed-event forecast structure allows study of the forecast revision process, its weak and strong efficiency, and its relation to macroeconomic news. The collection of density forecasts as well as point forecasts allows study of the revision process of forecast uncertainty. [ABSTRACT FROM AUTHOR]

We use the chain of events from the fall of the Berlin Wall to the reunification of Germany to examine how capital market participants respond to momentous and unprecedented events. Our examination measures the impact of these events on analysts’ forecasts for the earnings of West German firms. Our results show a significant decrease in analysts’ ability to accurately forecast earnings. Contrary to the public’s euphoria, the sense of the market was generally negative about the implications of unification for West German firms. This negative sentiment was spread across most of the broad sectors, but within those sectors the results were significantly positive for select groups of industries. It appears that, in the face of this extraordinary event, financial analysts were detached from the emotions it engendered and were discriminating in their assessment of its impact. [ABSTRACT FROM AUTHOR]

People are reluctant to admit mistakes. This could also be true of economic forecasters. If revisions of past forecasts are costly, then it will become optimal for forecasters to only partially adjust a past forecast in the light of new information. The unwillingness to admit to the mistake in the old forecast generates a bias of the new forecast in the direction of the old forecast. We test this hypothesis for the joint predictions of the Association of German Economic Research Institutes over the last 35 years. We find some evidence for such a bias and compute the implied unwillingness to revise forecasts. Copyright © 2006 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

This paper is concerned with a periodic review inventory system with fast and slow delivery modes and regular demand forecast updates. At the beginning of each period, on-hand inventory and demand information are updated. At the same time, decisions on how much to order using fast and slow delivery modes are made. Fast and slow orders are delivered at the end of the current and the next periods, respectively. It is shown that there exists an optimal Markov policy and that it is a modified base-stock policy. [ABSTRACT FROM AUTHOR]

Forecasts are routinely revised, and these revisions are often the subject of informal analysis and discussion. This paper argues (1) that forecast revisions are analyzed because they help forecasters and forecast users to evaluate forecasts and forecasting procedures and (2) that these analyses can be sharpened by using the forecasting model to systematically express its forecast revision as the sum of components identified with specific subsets of new information, such as data revisions and forecast errors. An algorithm for this purpose is explained and illustrated. [ABSTRACT FROM AUTHOR]