Using Analyst ‘Closeness’ To Get A Better EPS Consensus

When you’re waiting for the next round of earnings announcements to come out, there’s a lot of emphasis put on the consensus view – the average (or occasionally median) of all the major analysts covering the stock. That’s a straightforward measure, which has its own advantages, but it assumes analysts from different firms aren’t influencing each other, which probably isn’t true. Even without talking to each other information can flow in other ways – both directly as analysts keep an eye on the competition and indirectly simply by being aware of the current consensus and subconsciously moving toward it.

“We propose a novel approach for extracting incremental information from analyst forecasts. Instead of taking the more common methodology of using...