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Solved: Buy-side vs. sell-side analysts’ earnings
Chapter 4, Problem 101E(choose chapter or problem)
Buy-side vs. sell-side analysts’ earnings forecasts. Financial analysts who make forecasts of stock prices are categorized as either “buy-side” analysts or “sell-side” analysts. Refer to the Financial Analysts Journal (Jul./Aug. 2008) comparison of earnings forecasts of buy-side and sell-side analysts, Exercise 2.86 (p. 86). The mean and standard deviation of forecast errors for both types of analysts are reproduced in the table. Assume that the distribution of forecast errors are approximately normally distributed.
a. Find the probability that a buy-side analyst has a forecast error of +2.00 or higher.
b. Find the probability that a sell-side analyst has a forecast error of +2.00 or higher.
| BUY-Side Analysts | Sell-Side Analysts | |
| Mean Standard | 0.85 | -0.05 |
| Deviation | 1.93 | 0.85 |
Source:Based on Groysberg, B., Healy, P., & Chapman, C. Financial Analysis Journal, Vol. 64, No. 4, Jul./Aug. 2008.
Questions & Answers
QUESTION:
Buy-side vs. sell-side analysts’ earnings forecasts. Financial analysts who make forecasts of stock prices are categorized as either “buy-side” analysts or “sell-side” analysts. Refer to the Financial Analysts Journal (Jul./Aug. 2008) comparison of earnings forecasts of buy-side and sell-side analysts, Exercise 2.86 (p. 86). The mean and standard deviation of forecast errors for both types of analysts are reproduced in the table. Assume that the distribution of forecast errors are approximately normally distributed.
a. Find the probability that a buy-side analyst has a forecast error of +2.00 or higher.
b. Find the probability that a sell-side analyst has a forecast error of +2.00 or higher.
| BUY-Side Analysts | Sell-Side Analysts | |
| Mean Standard | 0.85 | -0.05 |
| Deviation | 1.93 | 0.85 |
Source:Based on Groysberg, B., Healy, P., & Chapman, C. Financial Analysis Journal, Vol. 64, No. 4, Jul./Aug. 2008.
ANSWER:Step 1 of 3:
Buy-side versus Sell-side Analyst’s forecasts
|
|
Buy-side Analysts |
Sell-Side Analysts |
|
Mean |
0.85 |
-0.05 |
|
Standard deviation |
1.93 |
0.85 |
Let, x = the average casino win percentage after 100 bets on black/red in double- zero roulette
Let x follows the Normal distribution with the probability density function is
\(\mathrm{f}(\mathrm{x})=\frac{1}{\sigma \sqrt{2 \Pi}} e^{-\frac{(x-\mu) 2}{2 \sigma^{2}}}\)