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Bridge over ocean
1 September 2016 Financial Analysts Journal Volume 72, Issue 5

Information in the Tails of the Distribution of Analysts’ Quarterly Earnings Forecasts

  1. Cameron Truong
  2. Philip B. Shane
  3. Qiuhong Zhao

Investors generally measure earnings announcement news on the basis of the difference between actual earnings and two salient benchmarks: earnings in the same quarter the previous year and a consensus drawn from a distribution of forecasts by financial analysts. We evaluate the implications of a third salient benchmark: the most optimistic forecast when actual earnings exceed the consensus and the most pessimistic forecast when the consensus exceeds actual earnings. We find that considering the information in these tails of the distribution of analysts’ earnings forecasts enhances the profitability of post–earnings announcement drift strategies.

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