Question:
An investor is comparing the variability of estimates by stock analysts, when they analyze the earnings potentials of U.S. and Canadian firms. For a sample of estimates (by different analysts) of the earning potentials of Canadian firms, the standard deviation is 0.0204, whereas the standard deviation for a sample of earnings estimates for U.S. firms is 0.0076 (based on data from "The Seasonal Impact of Institutional Investors (The January Effect)", Vol. 11, Canadian Investment Review, 09-01-1998, pp. 28-31). Suppose that n (the number of analysts making the projections) is 12 for each sample. At the 0.01 significance level, test the claim that the variability in analysts' earnings forecasts is different for firms in the two countries. If you base your investment decisions on earnings forecasts, would it be wiser to listen to a forecaster of Canadian or of U.S. firms? Explain.