Buy-side vs. sell-side analysts’ earnings forecasts. The Financial Analysts Journal (Jul/Aug 2008) presented a study of earnings forecasts of buy-side and sell-side analysts. Buy-side analysts differ from sell-side analysts on a variety of factors, including scope of industry coverage, sources of information used, and target audience. Data were collected on 3,526 forecasts made by buy-side analysts and 58,562 forecasts made by sell-side analysts and the relative absolute forecast error was determined for each. A positive forecast error indicates that the analyst is overestimating earnings, while a negative forecast error implies that the analyst is underestimating earnings. Summary statistics for the forecast errors in the two samples are reproduced in the following table
| Buy-Side Analysts | Sell-SideAnalysts |
Mean Standard Deviation | 0.85 1.93 | 0.05 0.85 |
Based on Groysberg, B., Healy, P., and Chapman, C. “Buy-side vs. sellside analysts’ earning forecasts.” Financial Analysts Journal , Vol. 64, No. 4, Jul/Aug 2008.
a. Conduct a test (at α = .01 ) to determine if the true mean forecast error for buy-side analysts is positive. Use the observed significance level ( p -value) of the test to make your decision and state your conclusion in the words of the problem.
b. Conduct a test (at α = .01 ) to determine if the true mean forecast error for sell-side analysts is negative. Use the observed significance level ( p -value) of the test to make your decision and state your conclusion in the words of the problem.
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