Another look at factors explaining quality of financial analysts' forecasts: Evidence from the Asian emerging markets

We analyse the relative importance of country-, industry-, and firm-specific factors in explaining the source of variation in the forecast errors made by financial analysts with respect to Pacific Basin emerging markets. Following [Heston, S. L., Rouwenhorst, K.G., 1994. Does industrial structure explain the benefits of international diversification? Journal of Financial Economics 36, 3-27], we first estimate each factor, and then decompose the variance of forecast errors into different effects. We document that the differences among countries, industrial sectors, or analyst following offer a weak explanation for the differences in forecast errors and forecast biases on eight Asian emerging markets examined over the 1990-2001 period. The type of earnings - profits or losses - and the variation of earnings - growth or fall - appear to be the two main explanation sources for the performance of financial analysts.