NOTE ON ADJUSTMENTS TO ANALYSTS EARNINGS FORECASTS BASED UPON SYSTEMATIC CROSS-SECTIONAL COMPONENTS OF PRIOR-PERIOD ERRORS

This study assesses the effectiveness of using systematic components o f cross-sectional forecast errors from prior years in order to adjust current analysts' earnings forecasts. The empirical results document t hat a significant component of the cross-sectional MSE in analysts' fo recasts is systematic, and that parameter estimates from earlier perio ds enable the elimination of a substantial portion of the systematic e rrors in current forecasts. Further improvements in forecast accuracy are attained by the incorporation of prior-year excess security return s in order to reduce unsystematic error.