Performance in Forecasting Quarterly earnings per Share number of Forecasts Mean Forecast error Standard Deviations of (Predicted – actual) Forecast errors analyst a 101 0.05 0.10
Performance in Forecasting Quarterly earnings per Share
number of Forecasts Mean Forecast error Standard Deviations of
(Predicted – actual) Forecast errors
analyst a 101 0.05 0.10
analyst b 121 0.02 0.09
Investment analysts often use earnings per share (EPS) forecasts. one test of forecasting quality is the zero-mean test, which states that optimal forecasts should have a mean fore- casting error of 0. (Forecasting error = Predicted value of variable − actual value of variable. you have collected data (shown in the table above) for two analysts who cover two different industries: analyst a covers the telecom industry; analyst b covers automotive parts and suppliers.
- with μ as the population mean forecasting error, formulate null and alternative hypotheses for a zero-mean test of forecasting quality.
- For analyst a, using both a t-test and a z-test, determine whether to reject the null at the 0.05 and 0.01 levels of significance.
- For analyst b, using both a t-test and a z-test, determine whether to reject the null at the 0.05 and 0.01 levels of significance.
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