Author(s):	Marco Aiolfi, Marius Rodriguez, Allan Timmermann
Publication Date:	January 2010
Keyword(s):	analysts' earnings forecasts;, mixture model, predictability of forecast revisions
JEL(s):	C22, G17
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=7656

This paper studies the asymmetric behavior of negative and positive values of analysts' earnings revisions and links it to the conservatism principle of accounting. Using a new three-state mixture of log-normals model that accounts for differences in the magnitude and persistence of positive, negative and zero revisions, we find evidence that revisions to analysts' earnings expectations can be predicted using publicly available information such as lagged interest rates and past revisions. We also find that our forecasts of revisions to analysts' earnings estimates help predict the actual earnings figure beyond the information contained in analysts' earnings expectations.