The Earnings Forecast Accuracy of Financial Analysts Who are CFA Charterholders

Abstract

This article examines the earnings forecast accuracy of financial analysts who have earned the right to use the CFA designation. Given the extensive rigor of the three-level CFA examination along with the substantial work experience requirements and required adherence to a strict Code of Ethics and Standards of Professional Conduct, it is hypothesized that CFA charterholders will provide more accurate earnings estimates than other financial analysts not holding the CFA charter. Our estimation results support this hypothesis. We find that, on average, financial analysts who hold the CFA charter provide 3.78% (2.70%) “tighter” forecast accuracy than non CFA charterholders for annual (quarterly) data respectively over the 1986 through 2002 time period. This is important information to the investment community as investors use financial analyst earnings forecasts in making assessments of correct security valuation.