TITLE:
The Measurement of Analysts’ Earnings Forecast Uncertainty
AUTHORS:
Chun Hu
KEYWORDS:
Analysts’ Earnings Forecast, Measurement, Uncertainty
JOURNAL NAME:
Modern Economy,
Vol.6 No.4,
April
17,
2015
ABSTRACT: Analysts’ earnings forecast began in the early 20th century in America, researchers
and investors are especially interested in estimating uncertainty about future
earnings, because it reveals important characteristics of the firm’s
information prior to the release of accounting results. Since uncertainty is
inherently unobservable, evaluating its estimates poses challenging
methodological problems. As a result, researchers have put forward alternative
proxies for earnings forecast uncertainty. Here, we will review the measurement
used in the study of foreign scholars of analysts’ earnings forecast
uncertainty, and make a comparison among various methods. Considering the
background of information, prediction model and analysts cannot be expected to know
the cause of the situation, GARCH as an ex ante measure, will be one of the
most accurately measures of uncertainty. Studying the methods of analysts’ earnings
forecast uncertainty will be conducive to market participants to understand the
characteristics of analysts’ earnings forecast, so as to make more rational
decisions.