Working paper
The Superficial Precision of Point Forecasts
SSRN
10/07/2023
DOI: 10.2139/ssrn.4598253
Abstract
A large body of literature on management forecasting assumes point forecasts are the most precise forecast issued by managers. Using archival and survey data, we challenge this assumption. First, examining forecast data, we find a U-shaped relation between analyst forecast dispersion and the frequency of point forecasts. This suggests that point forecasts are frequently used in periods of high uncertainty. Second, after giving a sample of sophisticated investors a hypothetical earnings announcement with accompanying range and point forecasts, survey respondents overwhelmingly view range forecasts as more informative and more credible than point forecasts. Third, when examining the market reaction to management forecasts, we find that the market responds less strongly to point forecasts than to range forecasts. Overall, our results suggest that point forecasts are often used in periods of high uncertainty and that investors regard point forecasts as providing less precise information than range forecasts on average.
Details
- Title: Subtitle
- The Superficial Precision of Point Forecasts
- Creators
- Hamilton Scott Asay - University of IowaPaul Hribar - University of IowaClaire Quinto - University of Iowa
- Resource Type
- Working paper
- Publisher
- SSRN
- DOI
- 10.2139/ssrn.4598253
- Number of pages
- 52 pages
- Alternative title
- The Precision of Point Forecasts
- Language
- English
- Date posted
- 10/07/2023
- Date updated
- 03/04/2024
- Academic Unit
- Accounting
- Record Identifier
- 9984507960302771
Metrics
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