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Fourth-quarter reporting season has hit Wall Street, so the tension is palpable. Did companies do well, disappoint or perform as expected? But the main question is - how will the market react?

An entire field of financial research has developed around this question, with both investment houses and academics pitching in.

Any securities trader knows that a company's results have only limited importance; lots of publicly-known information has already been priced in. So when a company's quarterly profit is published, the actual figure has only partial significance.

What matters more is the difference between the results and the market forecast: If profits exceed the forecast the stock will usually go up; if they fall short, the stock will usually go down.

But what forecast does the market go by? An investor might prefer a specific analyst and put more weight on that analyst's projections. Some institutional investors employ an in-house analyst whose forecasts get preference, while others rely on forecasts published by investment houses.

An average forecast could also be considered; many websites feature them. But which forecasts should be included in such an average - all or just those by large and reputable investment houses?

Whisper numbers

And that's not all. Sure, analysts, research firms and investment houses publish official forecasts, but there are also what Wall Street calls "whisper numbers." These unofficial forecasts are distributed just to large clients and the most important analysts, usually only days or even hours before publication of a company's financial report.

Whisper numbers became part of market culture more than a decade ago and have been considered the market's official forecast - at least among its best-connected players.

There is an innate logic to the beast. Analysts tend to make forecasts conservatively, if only to uphold their reputations, since the consequences of mistaken projections aren't symmetric. If results are pleasantly surprising then everyone is happy and shares go up, but if the analyst has been overoptimistic shares go down, clients will be upset and the analyst's good name will suffer.

But as the financial report's release draws near an analyst will often get a boost of confidence, perhaps from looking at results already published of other companies in the same industry. And even though there isn't enough time to issue a complete new forecast, the analyst is often confident the actual results will beat the original forecast.

Is this legal?

What does the analyst do? He makes a few calls to valued clients explaining the change in heart, and the word gets passed along - the birth of a new whispered number. When the report is released the real forecast in the hands of insiders will be the whispered number, not the forecasts printed on paper several weeks earlier.

Is this legal? The American financial media tended in the past to treat it as an insider-trading violation because whisper numbers are only shared by a few. But the issue can be viewed differently: This is exactly analysts' role, what they're being paid for. In the capital market time is money, and analysts would be negligent by keeping their updated forecasts to themselves.

Even investors without access to whisper numbers want to know how their stocks will react, so experience can be useful. UBS Investment Bank has examined how stocks reacted after the publication of the two most important figures in financial reports - sales and net profits - and built a matrix.

The results were fascinating: If both items provided unpleasant surprises the share price would drop precipitously, as expected. But even if the results were mixed, with one higher and one lower than expected, the share price dropped. Only if the figures provided pleasant surprises on both lines - sales and net profit - would the share price rise, albeit by a modest 2.1% on average.

The conclusion is that shareholders can only expect satisfaction if the company outperforms on all fronts. Otherwise, prepare for disappointment.