Empirical Study Of Analysts Earnings Forecasts

Along with the develop of our country's stock market, the stockjobber, as the securities market intermediaries, are developing fast. And many forecasts information provided by those stockjobbers appears. At present, the earnings forecasts is one of the most talked about information, Because it is relevant to the company's future earnings. This information is extremely relevant to the investors'investment decisions.Just like other information, the usefulness of earnings forecasts information can be measured from correlation and reliability. It was mentioned that the earnings forecasts is high relevant to the investment decisions, so the reliability of earnings forecasts is more concerned. In our country, the earnings forecasts information provided by the management of listed companies may be manipulated, and it's reliability is affected. Does the analysts have the ability to provide valuable services to investors? In China, the analysts'image is bad. There are many investors doubt the analysts'ability to interpret the information in a neutral position, and also there has no evidence to prove that the analysts'recommend can help investors improve investment returns. Thus, to study the analysts'earnings forecasts ability is more important.This paper is aimed at testing the reliability of earnings forecasts provided by the analysts, and also this paper will study the value of earnings forecasts for investors in a long time(one year). The author find that the analysts'earnings forecasts has a high reliability, but there is no value for investors. Although the analysts'earnings forecasts is very accurate when compared with the actual earnings of listed company, there is significant negative correlation between analysts'forecast earnings growth and stock return.This paper includes four chapters.Chapter 1: The introduction of analysts earnings forecasts. This chapter is mainly present two types of earnings forecasts information and the main problems in China's analysts industry.There are two different kinds of earnings forecasts, one is provided by the management of listed companies, the other is provided by the analysts. the management of listed companies has two cause to provide earnings forecasts information. First, it is the mandatory requirement by the government. Second, it is also the company's voluntary, because the company will benefit from the process of information disclosure, such as reduce the cost of raise funds and improve the company's image. It is the request of the development of stock market that the stockjobber provide earnings forecasts information, it can improve the efficiency of stock market. However, nowadays, there are still many problems in China's analysts industry, it is a question that the analysts can really improve the efficiency of stock market. The main problems include: first, the basement of government manage is still weak; second, the government manage is not tough enough; third, the media monitoring is very weak; fourth, the limitation of policies; fifth, analyst's own problems.Chapter 2: The related theories foundation of analysts'earnings forecasts. This chapter has cushion function, which means that empirical study in the next chapter is base in the theory of this chapter.This chapter gives introduction of the theories from four aspects. Beginning with the efficiency market hypothesis, and then the theory of asymmetrical information, and then the theory of information content, the last part of this chapter is the introduction of past related study, which include two parts, one is the relevant papers about those three theories, the other part is about analysts earnings forecasts.Chapter 3: The empirical study of analysts earnings forecasts. Based on one assumption, this chapter introduces research plan and sample selection, and then gets into the part of empirical study. The empirical study includes two parts, first is the test of the reliability of analysts earnings forecasts and second is the test of the value of earnings forecasts. Through researching, the chapter gives conclusions from two sides. On one hand, about 60% of earnings forecasts information are reliable, and 40% have errors, and from an overall point of view, analysts'earnings forecasts is optimistic bias. On the other hand, there is significant negative correlation between analysts'forecast earnings growth and stock return. Therefore, to investors, analysts'forecast earnings has no value. Investors can't employ analysts'forecast earnings in their investment decisions to improve investment return.Chapter 4: The conclusion and discussion. According to the empirical study of chapter 3, this chapter analyzes from four parts, which are research conclusion, limits of research, consideration of some question and suggestion.We can deduce from the research conclusion that the analysts'earnings forecasts is no value to investors although it is reliable. And then we analyze the reason why analysts'earnings forecasts has errors and the reason why analysts'earnings forecasts has no value to investors. As to the errors of analysts'earnings forecasts, there are some possible reasons: first, it is likely that analysts are driven by interests to provide overly optimistic earnings forecasts; second, more optimistic earnings forecasts is, more opportunities can analysts get to communicate with the management of listed companies. And so they can receive more private information. As to the valuelessness of analysts'earnings forecasts, there also has a possible reason: the management of listed companies manipulates the actual earnings, in a result of that, the earnings figure in the report eventually are not true, which influences the study conclusion.At last, the author gives some policy suggestion according to the conclusion of the research. First, we should try hard to train a group of independent stockjobbers and high-quality analysts. Second, we should strengthen the regulate of stockjobbers and analysts.The author thinks the new ideas of this thesis are as follows:1. This paper summarize pass returns and divide these research into two parts, the reliability test of earnings forecasts and the value test of earnings forecasts.2. By the usage toward foundation theories, this thesis conceives a simple and effective method for empirical study; make study of institutional investors'investment actions and performance and at last get some conclusions.3. The exploration of policy suggestion about development of institutional investors.