Rational Expectations Test on Financial Analysts' Earnings Forecasts under Assumed Loss Functions
Prior studies using ordinary least squares (OLS) regression find that financial analysts do not efficiently utilize public available information when making forecasts. The OLS-based tests implicitly assume that analysts face a quadratic loss function which aim to minimize their mean squared forecast...
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| Format: | Dissertation (University of Nottingham only) |
| Language: | English |
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2008
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| Online Access: | https://eprints.nottingham.ac.uk/22096/ |
| _version_ | 1848792356429496320 |
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| author | Chan, Wing Sum |
| author_facet | Chan, Wing Sum |
| author_sort | Chan, Wing Sum |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | Prior studies using ordinary least squares (OLS) regression find that financial analysts do not efficiently utilize public available information when making forecasts. The OLS-based tests implicitly assume that analysts face a quadratic loss function which aim to minimize their mean squared forecast errors. However, Gu and Wu (2003), and Basu and Markov (2004) argue that analysts face a linear loss function and thus minimize their mean absolute forecast errors. Therefore, rationality test should be examined by least absolute deviation (LAD) regression. As suggested by Basu and Markov (2004), we examine the rationality of analysts' forecasts with different information variables by using OLS and LAD regressions. Consistent with the prior studies, the OLS results show that analysts do not efficiently use the information when making forecasts under a quadratic loss function, but we find very little evidence of forecasts' inefficiency under a linear loss function. |
| first_indexed | 2025-11-14T18:43:06Z |
| format | Dissertation (University of Nottingham only) |
| id | nottingham-22096 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T18:43:06Z |
| publishDate | 2008 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-220962018-01-31T16:25:52Z https://eprints.nottingham.ac.uk/22096/ Rational Expectations Test on Financial Analysts' Earnings Forecasts under Assumed Loss Functions Chan, Wing Sum Prior studies using ordinary least squares (OLS) regression find that financial analysts do not efficiently utilize public available information when making forecasts. The OLS-based tests implicitly assume that analysts face a quadratic loss function which aim to minimize their mean squared forecast errors. However, Gu and Wu (2003), and Basu and Markov (2004) argue that analysts face a linear loss function and thus minimize their mean absolute forecast errors. Therefore, rationality test should be examined by least absolute deviation (LAD) regression. As suggested by Basu and Markov (2004), we examine the rationality of analysts' forecasts with different information variables by using OLS and LAD regressions. Consistent with the prior studies, the OLS results show that analysts do not efficiently use the information when making forecasts under a quadratic loss function, but we find very little evidence of forecasts' inefficiency under a linear loss function. 2008 Dissertation (University of Nottingham only) NonPeerReviewed application/pdf en https://eprints.nottingham.ac.uk/22096/1/08MAWingSumCHAN.pdf Chan, Wing Sum (2008) Rational Expectations Test on Financial Analysts' Earnings Forecasts under Assumed Loss Functions. [Dissertation (University of Nottingham only)] (Unpublished) earnings forecasts rational expectations quadratic loss function linear loss fucntion OLS regression LAD regression |
| spellingShingle | earnings forecasts rational expectations quadratic loss function linear loss fucntion OLS regression LAD regression Chan, Wing Sum Rational Expectations Test on Financial Analysts' Earnings Forecasts under Assumed Loss Functions |
| title | Rational Expectations Test on Financial Analysts' Earnings Forecasts under Assumed Loss Functions |
| title_full | Rational Expectations Test on Financial Analysts' Earnings Forecasts under Assumed Loss Functions |
| title_fullStr | Rational Expectations Test on Financial Analysts' Earnings Forecasts under Assumed Loss Functions |
| title_full_unstemmed | Rational Expectations Test on Financial Analysts' Earnings Forecasts under Assumed Loss Functions |
| title_short | Rational Expectations Test on Financial Analysts' Earnings Forecasts under Assumed Loss Functions |
| title_sort | rational expectations test on financial analysts' earnings forecasts under assumed loss functions |
| topic | earnings forecasts rational expectations quadratic loss function linear loss fucntion OLS regression LAD regression |
| url | https://eprints.nottingham.ac.uk/22096/ |