Examining the impact of market uncertainty on earnings forecasts: an empirical study from Egypt

Abstract

Purpose

This paper aims to conduct a comparative analysis of the impact of market uncertainty on the degree of accuracy and bias of analysts' earnings forecasts versus four model-based earnings forecasts.

Design/methodology/approach

The study employs panel regression analysis on a sample of Egyptian listed companies from 2005 to 2022 to examine the impact of market uncertainty on the accuracy and bias of each type of earnings forecast.

Findings

The empirical analysis reveals that market uncertainty significantly affects analysts’ earnings forecast accuracy and bias, while model-based earnings forecasts are less affected. Furthermore, the Earnings Persistence and Residual Income model-based earnings were found to be superior in terms of exhibiting the least susceptibility to the impact of market uncertainty on their forecast accuracy and biasness levels, respectively.

Practical implications

The findings have important implications for stakeholders within the financial realm, including investors, financial analysts, corporate executives and portfolio managers. They emphasize the importance of considering market uncertainty when formulating earnings forecasts, while concurrently highlighting the potential benefits of using alternative forecasting methods.

Originality/value

To our knowledge, the influence of market uncertainty on analysts' earnings forecast accuracy and bias in the MENA region, particularly in the Egyptian market, remains unexplored in existing research. Additionally, this paper contributes to the existing literature by pinpointing the forecasting method, specifically distinguishing between analysts-based and model-based approaches, whose predictive quality is less adversely impacted by market uncertainty in an emerging market.

Citation

Pasha, R., Wahba, H. and Lasheen, H.Y. (2024), "Examining the impact of market uncertainty on earnings forecasts: an empirical study from Egypt", Journal of Risk Finance, Vol. 25 No. 5, pp. 774-791. https://doi.org/10.1108/JRF-11-2023-0291