Analysts` Forecast Optimism. Evidence from Finnish Stock Markets.

The purpose of the study is to examine reasons behind analysts` EPS –forecast optimism in the Finnish stock markets in years 2006–2012. The empirical findings show that analysts are prone to conduct too optimistic forecasts in relation to the actual earnings. The studies find several reasons behind forecast optimism, but mainly the reasons can be divided into two different views. The first view states that the forecast optimism stems from analysts` irrational behavior. According to this view, analysts are prone to misinterpret the market information and conduct too optimistic forecasts in relation to the actual earnings. Second view suggests that analysts can conduct forecasts rationally based on economic and strategic reasons. Analysts can conduct their forecasts based on an incentive coming from the firm management or they can choose to produce forecasts only for the firms with good prospects. In the previous literature earnings uncertainty has been found to affect analysts´ rational decision–making and forecast optimism. Previous findings show that earnings uncertainty arises after a company releases extreme negative or positive earnings news when comparing to the previous period. Earnings uncertainty is measured as the forecast dispersion, standard deviation of the earnings forecasts. When the forecast environment is uncertain, analysts become uncertain about the future performance of the company and prefer to make overly optimistic forecasts. This study finds that the forecasts for the Finnish exchange-listed companies were overly optimistic during the whole period 2006-2012. A significant factor explaining the forecast optimism seems to be earnings uncertainty. Thus the results show that the higher earnings uncertainty leads to more optimistic forecasts.fi=Opinnäytetyö kokotekstinä PDF-muodossa.|en=Thesis fulltext in PDF format.|sv=Lärdomsprov tillgängligt som fulltext i PDF-format