Evidence from Archival Data on the Relation Between Security Analysts' Forecast Errors and Prior Forecast Revisions* JOHN A. ELLIOTT Comell University DONNA R. PHILBRICK Portland State University CHRISTINE I. WIEDMAN College of William and Mary Abstract. This paper examines the association between analysts' forecast errors at the earnings announcement date and the revisions to those forecasts during the preceding year. The study is an initial effort to use archival data from expert decision makers to test behavioral theories that have support in laboratory environments. Consistent with findings of conservatism in laboratory experiments, we find that analysts systematically under- weight new information. This finding is most pronounced when the analysts are consis- tently revising their estimates downward throughout the year. Risumi. Les auteurs examinent le lien entre les erreurs previsionnelles des analystes a la date de declaration des b^n£fices et les revisions dont ces provisions ont fait I'objet au cours de I'exercice pr6c6dent. II s'agit 1^ d'une premifere tentative d'utilisation des don- n6es d'archives des experts en matiere decisionnelle dans le but de tester les theories com- portementales qui ont ete demontrees en laboratoire. ConformSment aux observations faites en laboratoire en ce qui a trait & la prudence, Ies auteurs constatent que les analystes accordent systdmatiquement trop peu de poids k l'information nouvelle. Cette constata- tion est trfes marquee lorsque les analystes revisent continuellement leurs estimations k la baisse au cours de l'annde. The purpose of this study is to examine the relationship between analysts' sequential revisions of their earnings forecasts during the year and the * Accepted by Michael Gibbins. We appreciate comments from Jane Reimers, Jennifer Francis, Bill Kinney, Laureen Maines, Pat O'Brien, and workshop discussions at Connecticut, Comell, and Texas. The fmanciai support of Cornell's Accounting Institute and of Portland State University is gratefully acknowledged. IBES Inc. graciously provided access to the IBES forecast data for research purposes. Contemporary Accounting Research Vol 11 No. 2 (Spring 1995) pp 919-938 ®CAAA