Investor Beware: Stock Analysts’ Rounded Forecasts Are More Inaccurate and Upwardly Biased
In an era when a stock can take a beating if earnings fall a penny short of analysts' predictions, what factors influence whether forecasters seek precision to the penny or round off -- and how should their choice affect investors?
Berkeley-Haas Accounting Professor Patricia Dechow found that rounded forecasts are not only significantly more inaccurate than those that strive for penny-precision but also significantly more upwardly biased. The sharpest differences in both respects occur in companies with annual earnings per share of less than $10. Learn more.