TY - JOUR
T1 - An empirical analysis of the bias and rationality of profit forecasts published in new issue prospectuses
AU - CHENG, T. Y.
AU - FIRTH, Michael Arthur
PY - 2000/4/1
Y1 - 2000/4/1
N2 - This article examines the accuracy of earnings forecasts made by companies in Hong Kong, China in their new issue prospectuses between 1992 and 1995. In order to obtain a better picture of the initial public offering (IPO) profit forecast accuracy, prediction errors are compared with the errors from using a random walk model and with the errors from using a growth model. The forecasts made in prospectuses are found to be superior to those made by time series models. Bias and rationality tests give conflicting outcomes as to the efficacy of IPO forecasts. While the results are consistent with forecasts being made rationally in the sense of researcher W. De Bondt and R. Thaler, and J. K. Capstaff et al., they also indicate a pessimistic bias where forecasts are invariably less than actual.
AB - This article examines the accuracy of earnings forecasts made by companies in Hong Kong, China in their new issue prospectuses between 1992 and 1995. In order to obtain a better picture of the initial public offering (IPO) profit forecast accuracy, prediction errors are compared with the errors from using a random walk model and with the errors from using a growth model. The forecasts made in prospectuses are found to be superior to those made by time series models. Bias and rationality tests give conflicting outcomes as to the efficacy of IPO forecasts. While the results are consistent with forecasts being made rationally in the sense of researcher W. De Bondt and R. Thaler, and J. K. Capstaff et al., they also indicate a pessimistic bias where forecasts are invariably less than actual.
UR - http://commons.ln.edu.hk/sw_master/2448
UR - http://www.scopus.com/inward/record.url?scp=27744473201&partnerID=8YFLogxK
U2 - 10.1111/1468-5957.00319
DO - 10.1111/1468-5957.00319
M3 - Journal Article (refereed)
SN - 0306-686X
VL - 27
SP - 423
EP - 446
JO - Journal of Business Finance and Accounting
JF - Journal of Business Finance and Accounting
IS - 3/4
ER -