Value line quarterly EPS forecast error

Abstract

A study of Value Line quarterly earnings forecast errors from 1999 through Q3 2016 shows that the direction of forecast bias and forecast efficiency with respect to earnings news depend on investment rating. Patterns of bias and inefficiency indicate that Value Line analysts are primarily motivated to maintain credibility with investors than to appease company managers. For Buy-rated stocks, forecast bias is pessimistic, and forecasts are inefficient with respect to good earnings news. When news is bad for Buy-rated stocks, forecasts are unbiased and efficient. For Sell-rated stocks, forecast bias is optimistic, and forecasts are inefficient with respect to bad earnings news. When news is good for Sell-rated stocks, forecasts are unbiased and efficient.