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Author: Ismaël Renggli
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
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Book Description
Author: Ismaël Renggli
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
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Book Description
Author: Beverly R. Walther
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Category :
Languages : en
Pages :
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We examine the association between investor expectations and its components and sell-side analysts' short-run quarterly earnings forecast bias and forecast accuracy. To measure investor expectations, we use the Index of Consumer Expectations (ICE) survey and decompose it into the “fundamental” component related to underlying economic factors (FUND) and the “sentiment” component unrelated to underlying economic factors (SENT). We find that analysts are the most optimistic and the least accurate when SENT is higher. Management long-horizon earnings forecasts attenuate the effects of SENT on forecast optimism and forecast accuracy. Analysts are also the most accurate when FUND is higher. Last, the market places more weight on unexpected earnings when SENT is high. These findings suggest that analysts are affected by investor sentiment and the market reacts more strongly to unexpected earnings when analyst forecasts are the least accurate. The last result potentially explains why prior research (for example, Baker and Wurgler 2006) finds an association between investor sentiment and cross-sectional stock returns.
Author: Gerald J. Lobo
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Languages : en
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This study investigates the relationship between the dispersion of analysts' earnings forecasts and stock price variability around quarterly earnings announcements. Consistent with theoretical predictions, the empirical analysis shows that stock price variability at the time of earnings announcements is positively related to the degree of analysts' earnings forecast dispersion. The analysis also demonstrates that stock price variability is significantly greater from two days before to two days after the earnings announcement for firms ranked in the bottom third on the basis of analysts' forecast dispersion, whereas it is significantly greater from eight days prior to five days following the earnings announcement for firms in the top third. These results suggest that there is information about the earnings announcement that becomes available to at least a subset of investors prior to the earnings release. The increased level of price variability for five days following the earnings announcement suggests that market participants take different amounts of time to process the information conveyed by the earnings announcement.
Author: Samuel S. Tung
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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Book Description
This study investigates the relationship between the dispersion of analysts? earnings forecasts and stock price variability around quarterly earnings announcements. Consistent with theoretical predictions, the empirical analysis shows that stock price variability at the time of earnings announcements is positively related to the degree of analysts? earnings forecast dispersion. The analysis also demonstrates that stock price variability is significantly greater from two days before to two days after the earnings announcement for firms ranked in the bottom third on the basis of analysts? forecast dispersion, whereas it is significantly greater from eight days prior to five days following the earnings announcement for firms in the top third. These results suggest that there is information about the earnings announcement that becomes available to at least a subset of investors prior to the earnings release. The increased level of price variability for five days following the earnings announcement suggests that market participants take different amounts of time to process the information conveyed by the earnings announcement.
Author: Doron Avramov
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Languages : en
Pages :
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This paper shows that the puzzling negative cross-sectional relation between dispersion in analysts' earnings forecasts and future stock returns may be explained by financial distress, as proxied by credit rating downgrades. Focusing on a sample of firms rated by Samp;P, we show that the profitability of dispersion-based trading strategies concentrates in a small number of the worst-rated firms and is significant only during periods of deteriorating credit conditions. In such periods, the negative dispersion-return relation emerges as low-rated firms experience substantial price drop along with considerable increase in forecast dispersion. Moreover, even for this small universe of worst-rated firms, the dispersion-return relation is nonexistent when either the dispersion measure or return is adjusted by credit risk. The results are robust to previously proposed explanations for the dispersion effect such as short-sale constraints and leverage.
Author: Wenjuan Xie
Publisher:
ISBN:
Category :
Languages : en
Pages : 138
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Author: Andreas P. Dische
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Category :
Languages : en
Pages : 28
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It is a well documented phenomenon that stock prices underreact to news about future earnings and drift in the direction suggested by revisions in analysts' earnings forecasts. This paper shows that the dispersion in analysts' consensus forecasts contains incremental information to predict future stock returns. Higher abnormal returns can be achieved by applying an earnings momentum strategy to stocks with a low dispersion. This finding supports one of the recent behavioral models in which investors focus too little on the weight of new evidence and conservatively update their beliefs in the right direction, but by too little in magnitude with respect to more objective information.
Author: Shuping Chen
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Languages : en
Pages :
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This paper investigates the conclusion in Diether, Malloy, and Scherbina (2002) that dispersion in analysts' forecasts proxies for differences in investor beliefs, and that prices reflect the beliefs of optimistic investors when dispersion is high. If this is the case, we expect to find higher earnings response coefficients (ERCs), related to negative earnings surprises, for high versus low dispersion firms. This follows because the negative earnings surprises are less consistent with the beliefs of optimists. However, we find smaller ERCs, which calls into question the optimism argument in DMS. Further, we find that the relatively low future returns earned by high forecast dispersion firms, documented in DMS, are explained by the well known post-earnings-announcement drift phenomena. Specifically, after sorting observations based on prior period standardized unexpected earnings (SUEs), which are associated with drift, the difference between the future returns of high versus low dispersion firms is not statistically significant.
Author: Ashiq Ali
Publisher:
ISBN:
Category :
Languages : en
Pages : 44
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This paper examines whether a corporate disclosure practice is a reason for the forecast dispersion anomaly -- the negative relation between analyst forecast dispersion and future stock returns. Prior studies have shown that firms tend to disclose good news in a timely manner and delay the disclosure of bad news, and that withholding of news leads to greater dispersion in analysts' forecasts. Accordingly, we predict that firms with higher dispersion in analysts' earnings forecasts are more likely to experience poor earnings in subsequent quarters, and find evidence consistent with this prediction. After controlling for the relation between forecast dispersion and future earnings, we find that forecast dispersion is no longer negatively related to future stock returns. These results suggest that firms' tendency to withhold bad news increases forecast dispersion as well as causes the market to temporarily overvalue stocks until the bad news is publicly released.
Author: Lynn L. Rees
Publisher:
ISBN:
Category :
Languages : en
Pages : 51
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Book Description
Existing research provides competing theories as to how dispersion of investor beliefs might affect stock prices. We measure changes in dispersion of investor beliefs around earnings announcements using changes in the dispersion of individual analysts' forecasts. We find that the three-day market response to earnings announcements is negatively associated with changes in dispersion, consistent with the cost of capital hypothesis. The results hold after controlling for the current earnings surprise, forecast revisions of future earnings, and reported earnings relative to various earnings thresholds. Our study provides new insight about the information contained within earnings announcements that is incremental to the magnitude and timing of cash flows.
