Are Experienced Analysts More Accurate?

Abstract

We examine the relationship between analyst experience and the accuracy of annual earnings forecasts using a 20-year sample (1983-2002) from the Thomson Financial First Call I/B/E/S database.  We test for this relationship using three different measures of forecast accuracy employed by prior researchers, which are regressed against measures of general experience and specific experience, along with five other controls, for four independent 5-year subperiods, as well as for the full 20-year period.  We find that general experience levels are positively associated with forecast accuracy (negatively associated with forecast error) in most subperiods for two of the three measures of forecast accuracy.  We also find, in contrast with the extant literature, that for two of the three measures of forecast accuracy and for most subperiods, specific experience does not have an association with forecast accuracy beyond that provided by the general experience measure.  Our results suggest that the relationship between forecast accuracy and analyst experience (as well as some other commonly examined analyst characteristics) is dependent on the measure of accuracy employed and the time period studied.