Analyst Earnings Forecasts for Publicly Traded Insurance Companies

Analyst Earnings Forecasts for Publicly Traded Insurance Companies Several trends in the insurance and financial services industry, including demutualizationconsolidation, and deregulation, have attracted increasing attention from investors and financial analysts. This paper investigates the accuracy of the earnings forecasts of financial analysts for insurance companies. Our empirical results indicate that analyst forecasts outperform random walk time-series forecasts. Furthermore, we find that both disagreement over earnings forecasts among analysts and the relative forecasting error in the mean forecasts is smaller for life insurers than for property-casualty insurers, whereas the relative errors for forecasts for multiple-line insurers are in between the two. Forecasting error is a negative function of firm size and the number of analysts who are following a company, and is a positive function of the disagreement among analysts.Analyst forecasts have a timing advantage over the random walk model. Our results also suggest that the fair value reporting requirement (SFAS 115), which has been in effect since 1994, has enhanced the accuracy of analyst forecasts. The SFAS 115 has improved the superiority of analyst forecasts over the random walk forecasts for life insurers, but not for property-casualty insurers, and there is a weak improvement for multiple-line insurers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Analyst Earnings Forecasts for Publicly Traded Insurance Companies

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2006 by Springer Science + Business Media, Inc.
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-006-7212-1
Publisher site
See Article on Publisher Site

References

  • Analysts' Forecasts as Proxies for Investor Beliefs in Empirical Research
    Abarbanell, J. S.; Lanen, W. N.; Verrecchia, R. E.
  • Domestic Accounting Standards, International Accounting Standards, and the Predictability of Earnings
    Ashbaugh, H.; Pincus, M.

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