Analysts' Earnings Forecasts in Emerging Markets: A Combination Between Company Specifics and Macro Economics

We examine analyst’s earnings forecasts for 29 different emerging markets over the period 1991-2005 and analyse their relation with analysts’ forecasts for the GDP growth, inflation and politics. We document that analysts underreact to stock specific information. This effect is extremely clear during market crisis. A closer analysis reveals that analysts underreact to negative stock specific information, but overreact to positive information, which is similar to the analyst's behaviour in the US. Other studies indicate that stock prices in emerging markets move more closely together than in the developed markets.  This suggests that macro economic information is also relevant for earnings, besides company specific information. We show that analysts do incorporate macro-economic information in their earnings forecasts. In contrast to our expectations, we do not observe a clear relation between the extent of price synchronity (R2) and the use of macro economic forecasts in the earnings forecasts.

dittmann@few.eur.nl