Earning Forecast Error in US and European Stock Markets

• Published in: The European journal of finance Vol. 13; no. 2; pp. 105 - 122
• Main Authors: Bagella, Michele, Becchetti, Leonardo, Ciciretti, Rocco
• Format: Journal Article
• Language: English
• Published: London Routledge 01-02-2007; Taylor and Francis Journals; Taylor & Francis LLC
• Series: European Journal of Finance
• Subjects: Bias; Comparative analysis; comparative financial systems; corporate governance; Earnings forecast bias; Earnings forecasting; Economic forecasts; Error; Europe; Financial research; Securities markets; Standard deviation; Stock exchange; Stock prices; Stock returns; Studies; U.S.A; United States > US; Europe
• ISSN: 1351-847X; 1466-4364
• DOI: 10.1080/13518470600762507

The paper investigates the dynamics and determinants of the earning forecast bias in two (US and Eurozone) stock samples matched by size and industry affiliation. Evidence is found that the European bias is significantly higher in absolute terms, irrespective of the year and the distance from the release date, with the exception of the 1997-2000 period in which US stocks are more optimistically valued. Cross-market differences persist when they are regressed, in a panel GMM estimate, on various controls such as the number of individual forecasts and their standard deviation for any considered stock, with the latter being significantly lower in the US market. Finally, it is observed that a convergence process is at work in both markets, with the bias becoming progressively lower as the release date gets closer.