On the Role of Brokerage House Competition and Analyst’s Behavior in Forecasting

The predictability of analyst coverage for earnings has been well-established, but little research has explored whether competition among brokerage houses can enhance forecast performance. This study argues that, in addition to analyst coverage, competition at the brokerage house level, determined by the relative market size of the brokerage houses, can also impact forecast accuracy. Using monthly firm-level data over 38 years, our findings reveal that competition at the brokerage house level can be another factor that contributes to higher accuracy. Furthermore, this study investigates whether analysts tend to improve their forecasts when new information becomes available. The results indicate that analysts provide their initial forecast and subsequently revise it as they acquire new information, leading to an overall increase in forecast accuracy. This suggests that analysts actively adjust their forecast in response to changing market conditions, further highlighting the importance of considering the dynamic nature of analyst behavior.