The Inefficient Use of Macroeconomic Information in Analysts' Earnings Forecasts in Emerging Markets

This paper presents empirical evidence that security analysts do not efficiently use publicly available macroeconomic information in their earnings forecasts for emerging market stocks. Analysts completely ignore forecasts on political stability, while these provide valuable information for firm-level earnings growth. Analysts do incorporate output growth forecasts, but these actually bear no relevant information for firm-level earnings growth. Inflation forecasts are taken into account correctly. In addition, the information environment appears to be crucially important in emerging markets, as we find evidence that analysts handle macroeconomic information in a better way for more transparent firms.