This paper examines the quality of forecasts of Spanish firms' earnings where quality is judged against the criteria of accuracy and rationality. The Spanish case is particularly interesting. Both the accounting and stock market practices vary considerably fron those in more thoroughly researched markets such as the US or UK. The results show that Spanish analysts provide considerably less accurate forecasts than their US or UK counterparts. Whilts they are more accurate than the naive prediction model over short horizons when forecasts are made more than nine months before the accounting date the accuracy of analysts is not significantly better, or worse, tahn a naive model.
The forecasts are less accurate when firms' experience decreases in earnings, for longer forecasting horizons and for smaller firms. Test for rationality indicate an optimistic bias in forecasts, and are consistent wiht Spanish analysis overreacting to recent information when they make their forecasts. In contrast with the UK forecasts based on share price information is comparatively ineffectual in Spain. but forecast revisions are predicable to a much greater extent than normal.
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