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Whisperers Shout on Wall Street

Photonics Spectra
Jun 1998
R. Winn Hardin

Investors interested in the photonics industry would do well to listen to the "whispers" on Wall Street, according to a recent research study.
The study by Mark Bagnoli of the University of Michigan, Susan Watts of Purdue University and Messod Daniel Beneish of Indiana University looks at the correlation between "whisper forecasts" and stock market prices at the times of quarterly earnings reports. Whisper forecasts are unofficial estimates of earnings per share. They tend to deal with "high-flying, high-tech" stocks, Bagnoli said.
The group compared the accuracy of 943 whisper forecasts (mainly from Web sites and electronic bulletin boards such as and 3546 analysts' forecasts to 2.5 years' worth of corporate earnings statements from 127 firms, including Uniphase of San Jose, Calif., and Harmonic Lightwaves Inc. of Sunnyvale, Calif. They found that whisper forecasts were somewhat better at predicting earnings than analysts' reports on the First Call network.

Traditional method is optimistic
The group found that traditional reports, which are issued early in the quarter, tended to be more pessimistic about company earnings, while whisper forecasts tended to be slightly optimistic, but by a smaller margin.
They attributed part of whisper forecasts' smaller margin of error to the fact that the reports are issued only a few weeks from the official earnings announcement.
First Call forecasts are released the first week of each quarter, they said, and are updated infrequently. Also, Bagnoli said that whisper forecasts include additional earnings-relevant information that is not contained in First Call reports.
The researchers investigated how investors benefit from whisper reports. Watts said that, for their sample, traders who based their investments on whisper forecasts would have earned "significant positive returns over the five-day trading period preceding the earnings announcement."
"We find that ... whisper firms are 'momentum' firms," Watts said. "That is, they are relatively young, growth firms experiencing superior market performance. They are also more widely traded, and their shares are held by a greater number of institutional investors."
Whispers may speak loudly on Wall Street, but John Markese, president of the American Association of Individual Investors, said he worries that whisper forecasts could bode ill for individual investors.
"If whisper numbers were more accurate than the consensus, I'd say it's to [the small investors'] disadvantage," he said. "But we haven't proven that."

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