Financial Crisis to Enhance Optimism? – The Impact of the Financial Crisis on the Earnings per Share Forecast Error

Jáki, Erika and Neulinger, Agnes (2014) Financial Crisis to Enhance Optimism? – The Impact of the Financial Crisis on the Earnings per Share Forecast Error. Hungarian Statistical Review, 91 (SN18). pp. 42-66. ISSN 0039-0690

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Abstract

The authors investigate the impact of the financial crisis that started in 2008 on the earnings per share forecast error. There is a large body of evidence from the 1980s that analysts’ earnings per share forecasts systematically exceed the actual figures, i.e. they are generally optimistic. Other investigations support that the earnings per share forecast error is greater under uncertain environmental circumstances, while still others proved that analysts underreact negative information in making their forecasts. The financial crisis has brought about an abundance of negative information for analysts to consider in their earnings per share forecasts, and it has also increased the level of uncertainty for the entire economy. As a result, the crisis may be assumed to have increased the earnings per share forecast error in the optimistic direction. The study focuses on Hungarian companies listed on the stock exchange and their Austrian counterparts. Regarding the temporal focus of the research, it compared the five-year period directly preceding the financial crisis with the first two and a half years of the crisis. An interesting conclusion of the analysis is that there had been systematic pessimism in the five-year period before the crisis, whereas the earnings per share forecasts in the years of the crisis have been, in line with previous research findings, optimistic.

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