Explaining the Surprising Performance of Whisper Forecasts of Earnings

10.6293/AQAFA.2011.09.08

Susan Machuga；Karen Teitel；Ray Pfeiffer；Eng Wu

Analysts' earnings forecasts ； Whisper earnings forecasts ； Management earnings forecasts ； Forecast bias

Advances in Quantitative Analysis of Finance and Accounting

9期（2011 / 06 / 01）

201 - 238

英文

In this paper, we investigate whether the previously-documented strong performance of whisper forecasts say more about relative weakness in analysts' forecasts in certain contexts than relative strength of whispers. When analysts' forecasts are perceived to be out of line and are pessimistic we find that whisper forecasts are more likely to occur, are more accurate than analysts' forecasts and are more representative of investors' earnings expectations than analysts. Our findings are consistent with the interpretation that whisper forecasts of earnings are not inherently better than analysts' forecasts. Rather, in circumstances where analysts incentives and/or abilities lead their forecasts to be erroneous, and when management does not have an incentive to correct the prevailing expectations, whisper forecasts are more likely to occur. And, because those providing the whispers do not face the same constraints as financial analysts or managers, whispers tend to be relatively more accurate and informative under these conditions. We also theorize and provide empirical support indicating that it is more likely that the whisper providers are management under these conditions.

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