Financial Analysts’ Forecasts Have Improved Significantly in the Post-Reg FD Period

Reducing the amount of private information in corporate disclosures does not necessarily reduce the accuracy of analysts’ forecasts. This paper applies model-based earnings forecasts as a benchmark that is immune from disclosure of private information and evaluates the relative performance of analysts’ forecasts of earnings against the benchmark. It finds that the I/B/E/S consensus forecasts in general outperform the benchmark forecasts in the post-Reg FD period, while they underperform the benchmark in the pre-Reg FD period. It seems that Reg FD is a watershed. The difference-in-difference analysis confirms that the accuracy of analysts’ consensus forecasts of earnings has improved significantly following the passage of Reg FD.