Consensus Forecasts of Corporate Earnings Changes and the Performance of Swiss Stocks

Abstract

This study examines the behavior of stock prices around the publication of earnings revisions based on consensus forecasts for Swiss companies. Monthly consensus updates and daily abnormal returns are analyzed around announcement dates. Significant abnormal returns can be observed before and after announcement dates. The magnitude of the earnings revision is strongly and positively related to the abnormal returns in the fifty days prior to the publication date of the consensus. Statistically significant abnormal returns can be earned in the postannouncement period only for the portfolio of the stocks exhibiting the most positive earnings revision. Thus, the consensus can be used as valuable investment advice. The effect is particularly strong for stocks not included in the Swiss Market index.