Courtesy of Mish.
Analyzing the Forecasters
How overoptimistic are Wall Street forecasts year in and year out?
Salil Mehta, business statistics professor at Georgetown University addresses that question on his "Statistical Ideas" blog: Strategists Full of Bull.
Mehta collected 186 public forecasts from 1998-2015 of the annual ritual of making market projections for the year ahead.
Firms included JPMorgan, Citigroup, Goldman Sachs, Merrill Lynch, Bear Stearns, Lehman, Morgan Stanley, Prudential, UBS, AG Edwards, Bank of America, etc. Not every company made a forecast every year. Some of the firms are now extinct.
Data primarily comes from Barron’s as far back in time as continuously available. For a couple years, when Barron’s data wasn’t easily available, Mehta used market prediction made in USA Today’s or similar surveys.
Forecasters Full of Bull
Results were no better than a coin toss as to whether the S&P came in above or below the average forecast.
Nonetheless, every year had one thing in common: Not once did a consensus predict a down year.
On average, forecasts were wildly bullish, even with the gains in recent years.
In his analysis, Mehta focused primarily on distribution and standard deviations. Some may find his dispersion charts confusing. To his credit, Mehta made his Analyst Forecast Data available for others to analyze and I took him up on it.
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