Capital Markets

Turning Up the Volume on Whisper Numbers

Markets may move more on accumulated investor opinions than on consensus analyst forecasts, a new study finds.
Helen ShawFebruary 24, 2006

Financial executives are well aware of Wall Street analyst forecasts of corporate earnings and stock performance, but there’s another voice in the market that they may want to heed: whisper numbers.

Originally, whisper numbers meant insider information, such as earnings expectations, that corporate insiders or Wall Street denizens quietly forwarded to favored clients, explains John Scherr, president of Given the current regulatory environment, he notes, corporate insiders are less likely to engage in such risky behavior.

Today, whisper numbers are compiled by websites; they represent averages of individual investors’ expectations of corporate earnings and economic indicators for the most recent quarter., for its part, contains an average of numbers submitted to the site by whoever cares to submit them.

Although a collection of random investor opinions may seem a dubious source of financial wisdom, whisper numbers do appear to be a factor in the movement of share prices, according to a study conducted by finance professors at San Jose State University. “We were somewhat surprised that the stock market as a whole reacted significantly to whispers,” says Prof. Janis Zaima, co-author with Prof. Maretno Harjoto of “Conflict in Whispers and Analyst Forecasts: Which One Should Be Your Guide?”

The study, based on data from from January 1999 to April 2002, revealed a number of statistically significant findings. Most surprising for the authors was that when earnings per share met or exceeded analyst forecasts — but not the whisper number — on average the share price experienced significant losses after the earnings release. That indicates that the market gave more weight to the whisper number than to the analyst estimate, says Zaima; she adds that “different information is being captured by the forecasts given by analysts and whispers.”

Exactly what that difference is remains unclear. One possibility, suggests Zaima, is that individual investors — who, unlike analysts, do not meet directly with the company to receive its self-assessment of performance — may be more optimistic and less inclined to think negatively.

What of the hefty losses that that occur after earnings releases come in below the whisper number? “Part of it could be ‘following the herd’ mentality,” she says; “if the stock goes down, regardless of the reason, people could panic and sell.” Or it could be the oft-cited tendency of investors to overreact to bad news.

The study also examined market results when earnings per share meet or beat the whisper number but not analysts’ forecasts. The results were statistically insignificant, according to Zaima, who points to the small sample size for this scenario.

Among the study’s other findings: When earnings met or beat consensus analyst forecasts as well as the whisper number, the stock experienced gains both before and after the earnings release. Conversely, when earnings failed to meet both estimates, the stock experienced declines on the earnings announcement date and afterward. (The study verified the analyst forecasts reported on by comparing them with the I/B/E/S First Call database; all numbers matched.)

The study suggests that finance chiefs should do more than be aware of whisper numbers; they should also find ways to curb their volatility, experts say. “From a CFO perspective, it may not be so much managing the whisper number as managing the expectations of investors and analysts,” advises Charles Rotblut, an analyst at investment research provider

When there’s an earnings surprise, expectations change, observes Rotblut. He believes that a company should issue press releases throughout the quarter on how well the business is performing — and how well it’s performing relative to its own forecast. Indeed, if a company is outperforming its forecast, the share price should rise with the announcement of positive guidance any time during the quarter.

But providing more information also has its hazards. “If you say you will earn one number,” says Rotblut, but later determine you will miss it, you risk “an adverse impact on your stock price by saying you are not going to meet your goal.”