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Author: Jeffery Abarbanell
Publisher:
ISBN:
Category : Stocks
Languages : en
Pages : 50
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Book Description
Author: Jeffery Abarbanell
Publisher:
ISBN:
Category : Stocks
Languages : en
Pages : 50
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Author: Min Ye
Publisher:
ISBN:
Category : Corporate profits
Languages : en
Pages : 168
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Author: Véronique Bessière
Publisher:
ISBN:
Category :
Languages : en
Pages : 21
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Book Description
The financial markets crash, which occurred March-April 2000 has aroused suspicion about financial analysts' forecasts accuracy which could have made them more cautious, perhaps pessimistic about future performance. This article investigates the possibility of recent behavioral changes by examining analysts' reactions to good and bad news before and after the crash. We analyze the interaction between over- and under-reaction and the optimistic bias following Easterwood and Nutt (1999)'s methodology. If the crash leads analysts to be less prone to optimism (or even pessimism), we might observe weaker underreaction (or possibly overreaction) to bad news and weaker overreaction (or possibly underreaction) to good news. Our results indicate a strong decrease in optimism after the crash. The tendency to produce overly positive and moderately negative revisions or forecasted changes diminishes or reverses. Reactions to new information are consistent with a reduction in optimism: analysts' systematic underreaction to negative information strongly decreases after the crash. Overreaction to positive information, less pronounced before the crash, is also weakened.
Author: Dimitris Kenourgios
Publisher:
ISBN:
Category :
Languages : en
Pages : 20
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Book Description
This paper presents an analysis of two forms of overreaction (generalized overreaction and overreaction to prior earnings changes) in analysts' earnings forecasts for the UK stock market, using a sample of individual forecasts of earning per share from a British investment bank over the period 1989-2002. Given that previous UK empirical research over 1980s and mid '90s has provided limited and contradictory findings, we investigate whether and how overreaction of analysts forecasts varies across forecast horizons, firm size (small and large) and growth opportunities (high and low P/E ratio) in order to provide further and comparable evidence. Overall, our findings support the generalized overreaction hypothesis but reject the firm size effect, the overreaction for high P/E ratio companies and the higher overreaction regarding the forecasting horizon.
Author: Douglas E. Stevens
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Prior archival studies of analysts' forecasts have found evidence for systematic underreaction, systematic overreaction, and systematic optimism bias. Easterwood and Nutt (1999) attempt to reconcile the conflicting evidence by testing the robustness of Abarbanell and Bernard's (1992) underreaction results to the nature of the information. Consistent with systematic optimism, forecasts are found to underreact to negative earnings information but overreact to positive information. However, Easterwood and Nutt are unable to distinguish between misreaction caused by incentives unique to analysts with misreaction caused by human decision bias that may be typical of investors. We address this issue by analyzing forecast reactions to positive versus negative information in the controlled experimental setting of Gillette, Stevens, Watts, and Williams (1999). This experimental setting has the potential to detect human decision bias because it is void of potentially confounding incentives of analysts, contains a simple forecasting objective (a random-walk series), and provides learning opportunities and economic incentives to minimize forecast error. We find a systematic forecast underreaction to both positive and negative information, and the underreaction is generally greater for positive information than negative information. These results suggest that prior empirical evidence of forecast overreaction to positive information is unlikely to be attributable to human decision bias.
Author: Véronique Bessière
Publisher:
ISBN:
Category :
Languages : en
Pages : 1
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This article examines the link between uncertainty and analysts' reaction to earnings announcements for a sample of European firms during the period 1997-2007. In the same way as Daniel, Hirshleifer and Subrahmanyam (1998), we posit that overconfidence leads to an overreaction to private information followed by an underreaction when the information becomes public. Psychological findings suggest that this effect is more prominent in an uncertain environment. Our tests are based on the relationship between forecast revisions and forecast errors. When analysts excessively integrate information in their revisions (i.e. overreact), their forecast revisions are too intense, and the converse occurs when they underreact. As a proxy for uncertainty we analyze two subsamples: high-tech and low-tech firms. Our results support the overconfidence hypothesis. We jointly observe the two phenomena of under- and overreaction. Overreaction occurs before the public release and disappears after it. Our results also show that both effects are more significant for the high-tech subsample. For robustness, we sort the sample using analyst forecast dispersion as a proxy for uncertainty and obtain similar results. We also document the fact that the high-tech stock crash in 2000-2001 moderated analysts' overconfidence.
Author: Zhongjin Lu
Publisher:
ISBN:
Category :
Languages : en
Pages : 60
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Book Description
I propose a nested hypothesis test of competing mechanisms that explain return momentum and reversal using seemingly opposite biases: underreaction or delayed overreaction in investors' expectations of cash flows. Using analysts' forecasts as a proxy for these expectations, this study traces the errors of the continuously updated expectations over a 24-month holding period in which returns are characterized by a momentum phase followed by a reversal phase. Empirically, I find strong evidence for underreaction in cash-flow expectations and little evidence for delayed overreaction. These results provide new insights on the determinants of momentum and reversal and lead to novel implications that are tested in this paper.
Author: Richards J Heuer
Publisher: Pickle Partners Publishing
ISBN: 1839743050
Category : History
Languages : en
Pages : 344
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Book Description
In this seminal work, published by the C.I.A. itself, produced by Intelligence veteran Richards Heuer discusses three pivotal points. First, human minds are ill-equipped ("poorly wired") to cope effectively with both inherent and induced uncertainty. Second, increased knowledge of our inherent biases tends to be of little assistance to the analyst. And lastly, tools and techniques that apply higher levels of critical thinking can substantially improve analysis on complex problems.
Author: Jana Smith Raedy
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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Book Description
This paper provides empirical evidence that underreaction in financial analysts' earnings forecasts increases with the forecast horizon, and the paper offers a rational economic explanation for this result. The empirical portion of the paper evaluates analysts' responses to earnings-surprise and other earnings-related information. Our empirical evidence suggests that analysts' earnings forecasts underreact to both types of information, and the underreaction increases with the forecast horizon. The paper also develops a theoretical model that explains this horizon-dependent analyst underreaction as a rational response to an asymmetric loss function. The model assumes that, for a given level of inaccuracy, analysts' reputations suffer more (less) when subsequent information causes a revision in investor expectations in the opposite (same) direction as the analyst's prior earnings forecast revision. Given this asymmetric loss function, underreaction increases with the risk of subsequent disconfirming information and with the disproportionate cost associated with revision reversal. Assuming that market frictions prevent prices from immediately unraveling these analyst underreaction tactics, investors buying (selling) stock based on analysts' positive (negative) earnings forecast revisions also benefit from analyst underreaction. Therefore, the asymmetric cost of forecast inaccuracy could arise from rational investor incentives consistent with a preference for analyst underreaction. Our incentives-based explanation for underreaction provides an alternative to psychology-based explanations and suggests avenues for further research.
Author: Sundaresh Ramnath
Publisher: Now Publishers Inc
ISBN: 1601981627
Category : Business & Economics
Languages : en
Pages : 125
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Book Description
Financial Analysts' Forecasts and Stock Recommendations reviews research related to the role of financial analysts in the allocation of resources in capital markets. The authors provide an organized look at the literature, with particular attention to important questions that remain open for further research. They focus research related to analysts' decision processes and the usefulness of their forecasts and stock recommendations. Some of the major surveys were published in the early 1990's and since then no less than 250 papers related to financial analysts have appeared in the nine major research journals that we used to launch our review of the literature. The research has evolved from descriptions of the statistical properties of analysts' forecasts to investigations of the incentives and decision processes that give rise to those properties. However, in spite of this broader focus, much of analysts' decision processes and the market's mechanism of drawing a useful consensus from the combination of individual analysts' decisions remain hidden in a black box. What do we know about the relevant valuation metrics and the mechanism by which analysts and investors translate forecasts into present equity values? What do we know about the heuristics relied upon by analysts and the market and the appropriateness of their use? Financial Analysts' Forecasts and Stock Recommendations examines these and other questions and concludes by highlighting area for future research.
