Local Analyst Earnings Forecast Advantages in Europe

Abstract

This study investigates local analyst earnings forecast advantages in Europe. Information asymmetries or different incentives may drive hypothesized local advantages. Statistically significant, but not overwhelming, evidence indicates that local analysts forecast earnings more accurately than non-local analysts. Leader and follower tests support the observation that local analysts issue timelier forecasts. Accuracy results are driven in part by the German sample and may be attributable to the DVFA/SG earnings adjustment process used by analysts. U.K. (London) based analysts are less accurate forecasters. The magnitude of the local forecast advantage is large enough to be economically interesting, particularly in Germany. The findings support the existence of geographic information asymmetries and support explanations for home equity bias.

Keywords: Analyst earnings forecasts, international, information asymmetry, home equity bias

JEL Classification: F39, G24, M41, N24