Research Article

Evaluating equity analyst forecasts in South Africa


Sell-side fundamental analyst reports are highly valued in the financial industry and include three main quantitative components: earnings forecasts, target prices, and buy/sell recommendations. This paper examines analyst accuracy by investigating forecasts made on South African equities over the period January 2004 to June 2018. We examine the statistical performance of 12-month target price forecasts, focusing on point, directional, and term accuracy. Further analysis is then done by grouping forecasts by stock rating, analyst firm, market sector, and market regime. We also conduct a study on the persistence of forecast accuracy across analysts and across stocks over the 15-year period. Finally, in order to determine their economic significance, we categorise the equity universe into quintiles based on various analyst forecast values and backtest a range of forecast-driven systematic strategies.

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