Analyst Crackdown Did Nothing to Improve U.S. Earnings Forecasts

Bloomberg reports:

Turns out you can’t regulate accuracy.

More than a decade after a government crackdown on conflicts of interest on Wall Street, a new study says stock analysts are no better now than they used to be at predicting corporate earnings. Actually, they’re worse, according to the paper, which reviewed how close profit estimates came to what companies ended up reporting from fiscal year 1994 to 2013.

The study, to be published in the CFA Institute’s Financial Analysts Journal, is the latest to assess the reliability of Wall Street research and find it lacking. Several explanations are possible for the deterioration, the authors speculated. Among them: analysts got lazy after the spotlight on their work faded, or companies don’t release enough data to make forecasting results possible.

“Even though conflicts of interest are being reduced because of rules, we’re still back to square one because we don’t have accurate forecasts,” Reza Espahbodi, the Washburn University professor who co-authored the report, said in a phone interview. “If the quality of the information coming out of the financial reports analysts have access to is not where it should be, they’re not going to be as accurate and unbiased as they should be.”

The great moments of government.