Do analysts become better forecasters over time? Evidence from India Online publication date: Thu, 13-Oct-2022
by Arit Chaudhury; Seshadev Sahoo
International Journal of Indian Culture and Business Management (IJICBM), Vol. 27, No. 2, 2022
Abstract: There are conflicting studies in literature about how the analyst forecast bias, which can be driven by various factors, have trended over time. In this context, we study analyst forecasts in India over the past two decades (1998-2018), as well as before and after the global financial crisis (GFC) in 2008-2009, to find out whether the forecasts have actually become less biased and more accurate over time as the stock coverage and market liquidity has improved. In our initial tests, we find that analyst forecast accuracy has indeed improved over time/after GFC in India, as expected, as the markets have become more mature and efficient. However, when we control for the market turnover, representing the information environment as an additional factor, we find that the underlying bias has actually increased over time. Our results show that the improvement in forecast accuracy of analysts in India over the past two decades is mainly due to the improved information environment.
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