An Analysis of Brokers' and Analysts' Unpublished Forecasts of UK Stock Returns




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    • Both authors from London Business School. We would like to thank the executives of the institution which cooperated with us in this study, both for data collection and for helpful responses to earlier drafts. We benefitted from the insights of Dick Brealey, Michael Brennan, Ian Cooper, Evi Kaplanis, the Journal's referee, and participants at workshops held at the London Business School and at the European Institute for Advanced Studies in Management, Brussels. We also received useful comments from participants at the 1984 Conference on New Challenges for Management Research, Leuven, Belgium and at the 1984 Meetings of the Eastern Finance Association, Orlando, Florida, European Finance Association, Manchester, England, and International Symposium on Forecasting, London, England.


This paper describes an empirical study of over 4000 specific share return forecasts made by 35 UK stockbrokers and by the internal analysts of a large UK investment institution. A comparison of forecast and realised returns reveals a small but potentially useful degree of forecasting ability. A large part of the information content of the forecasts, however, appears to be discounted in the market place within the first month. Nevertheless, an analysis of some 3000 transactions motivated by, and executed at the time of, the forecasts shows that the apparent predictive ability of the recommendations could be translated into superior performance by the fund's investment managers. Differences in forecasting ability between brokers do not appear to persist over time, but predictive accuracy can be improved by pooling simultaneous forecasts from different sources.