This paper examines the dynamic behavior of analysts' earnings forecasts over the twelve months preceding annual earnings announcements. We investigate the claim that analysts make optimistic forecasts at the start of the year and then 'walk down' their estimates to a level the firm is likely to beat by the end of the year. The sample consists of I/B/E/S individual-analyst forecasts for the period 1983-1997. In the post-1992 period, we find strong evidence of a switch from upward-biased to downward-biased forecasts of annual earnings as the announcement date approaches. Forecast pessimism is strongest for high market-to-book firms, for large firms, and in periods when real GDP is growing. We also find that analysts forecasts are more accurate for firms involved in new equity issuance. Finally, we find that pessimistic forecasts are more frequent in years when firms report positive special items, high cash flows from operations and high working capital accruals.