The Influence of Institutional Investors on Analyst Earnings Forecast Properties PDF Download
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Author: Paul A. Wong
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
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Book Description
Analysts are motivated to fulfill client demand for information, and institutional investors are sell-side analysts' most important clients. Following time allocation theory, analysts likely prioritize tasks and the firms they follow to maximize their overall utility. I posit analysts issue more accurate and informative earnings forecasts for firms that provide greater expected utility to the analyst. Using the firm's exposure to institutional investors, as a measure of expected utility, I find that analysts report more accurate forecasts for firms with greater exposure to institutional investors. In addition, I find evidence that analysts issue more informative earnings forecasts for firms with greater exposure to institutions that rely on private information, specifically institutions with transient investment strategies. These findings suggest that analysts allocate greater forecasting resources to firms with more exposure to priority clients and issue more informative and accurate forecasts for these firms.
Author: Paul A. Wong
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
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Book Description
Analysts are motivated to fulfill client demand for information, and institutional investors are sell-side analysts' most important clients. Following time allocation theory, analysts likely prioritize tasks and the firms they follow to maximize their overall utility. I posit analysts issue more accurate and informative earnings forecasts for firms that provide greater expected utility to the analyst. Using the firm's exposure to institutional investors, as a measure of expected utility, I find that analysts report more accurate forecasts for firms with greater exposure to institutional investors. In addition, I find evidence that analysts issue more informative earnings forecasts for firms with greater exposure to institutions that rely on private information, specifically institutions with transient investment strategies. These findings suggest that analysts allocate greater forecasting resources to firms with more exposure to priority clients and issue more informative and accurate forecasts for these firms.
Author: Min-Hsien Chiang
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper aims to investigate the effect of financial analysts' earnings forecast on the institutional trading. In specific, we address three issues regarding the effect of financial analysts earnings forecast on the institutional holdings: (1) Do institutional investors pay more attention and more sensitive to analyst earnings forecast with higher forecast accuracy? (2) Do institutional investors prefer analysts with higher accuracy on earnings forecast? (3) Do institutional investors prefer analysts with bold attitude toward earnings forecast? Firstly, our empirical results show that institutional investors do pay attention to the accuracy of financial analysts earnings forecast. That is, firms with higher accuracy of analysts' earnings forecast tend to attract more institutional investors' attention and thus higher institutional holdings. Secondly, our results evidence that institutional investors prefer analysts with higher accuracy in their earnings forecast. That means institutional investors tend to follow more closely those analysts whose earnings forecasts are more accurate. Finally, we find that institutional investors in general are indifferent to the boldness of analysts earnings forecast. However, institutional investors will pay more attention and follow more closely those analysts whose earnings forecasts are not only accurate but also close to the consensus.
Author: Joseph D. Piotroski
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
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Book Description
We investigate the extent to which the trading and trade-generating activities of three informed market participants -- financial analysts, institutional investors, and insiders -- influence the relative amount of firm-specific, industry-level and market-level information impounded into stock prices, as measured by stock return synchronicity. We find that stock return synchronicity is positively associated with analyst forecasting activities, consistent with analysts increasing the amount of industry-level information in prices through intra-industry information transfers. In contrast, stock return synchronicity is inversely related to insider trades, consistent with these transactions conveying firm-specific information. Supplemental tests show that insider and institutional trading accelerate the incorporation of the firm-specific component of future earnings news into prices alone, while analyst forecasting activity accelerates both the industry and firm-specific component of future earnings news. Our results suggest that all three parties influence the firm's information environment, but the type of price-relevant information conveyed by their activities depends on each party's relative information advantage.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
The importance of information in the formation process of security prices has a long history. The dissemination of information can take on different forms depending on the legal constraints. However, in all developed financial markets, financial analysts play a prominent role in collecting, analysing and diffusing information. Financial analysts typically supply future earnings estimates and stock picking advices in the form of recommendations. Earnings estimates are the essential part of security valuation by analysts and investors. They have even become an integral part of financial reporting in the financial press. Early research has accumulated evidence that these estimates are optimistically biased. More recently, empirical studies have found that analysts' optimistic bias is lessening, that its extent differs across analysts, firm characteristics and countries. Broadly speaking, this dissertation investigates the determinants of financial analyst forecasts bias. In the first essay, I examine the relative accuracy of European financial analysts' earnings forecasts and its determinants. I show that the results obtained for US analysts can not be generalised to European analysts who face a seemingly different job market as well as several different institutional and economic environments. In the second essay, I investigate the influence of financial analysts' location on their performance. More precisely, I examine the relative performance of local versus foreign analysts on Latin American stock markets. I find foreign analysts to be more timely and more accurate than their local counterparts. In addition, I document stronger price reactions after foreign analysts' forecast revisions than after those of local analysts. The third essay is related to the declining pattern of financial analyst forecast bias. In particular, I investigate whether US CEOs compensation arrangements give CEOs incentives to manipulate analysts' expectations downward in order to release ea.
Author: Richard H. Thaler
Publisher: Russell Sage Foundation
ISBN: 9780871548443
Category : Business & Economics
Languages : en
Pages : 628
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Book Description
Modern financial markets offer the real world's best approximation to the idealized price auction market envisioned in economic theory. Nevertheless, as the increasingly exquisite and detailed financial data demonstrate, financial markets often fail to behave as they should if trading were truly dominated by the fully rational investors that populate financial theories. These markets anomalies have spawned a new approach to finance, one which as editor Richard Thaler puts it, "entertains the possibility that some agents in the economy behave less than fully rationally some of the time." Advances in Behavioral Finance collects together twenty-one recent articles that illustrate the power of this approach. These papers demonstrate how specific departures from fully rational decision making by individual market agents can provide explanations of otherwise puzzling market phenomena. To take several examples, Werner De Bondt and Thaler find an explanation for superior price performance of firms with poor recent earnings histories in the tendencies of investors to overreact to recent information. Richard Roll traces the negative effects of corporate takeovers on the stock prices of the acquiring firms to the overconfidence of managers, who fail to recognize the contributions of chance to their past successes. Andrei Shleifer and Robert Vishny show how the difficulty of establishing a reliable reputation for correctly assessing the value of long term capital projects can lead investment analysis, and hence corporate managers, to focus myopically on short term returns. As a testing ground for assessing the empirical accuracy of behavioral theories, the successful studies in this landmark collection reach beyond the world of finance to suggest, very powerfully, the importance of pursuing behavioral approaches to other areas of economic life. Advances in Behavioral Finance is a solid beachhead for behavioral work in the financial arena and a clear promise of wider application for behavioral economics in the future.
Author: Bipin B. Ajinkya
Publisher:
ISBN:
Category :
Languages : en
Pages : 58
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Book Description
This paper investigates the effect of institutional ownership and board of directors' composition on the properties of management earnings forecasts. A firm's optimal disclosure policy is determined by a trade-off between costs and benefits of disclosure. Managers acting in their self-interest may have incentives to distort disclosure policy. Governance mechanisms, to the extent they are effective in protecting the interests of the providers of capital, should mitigate these distortions. We find evidence that institutional ownership and outsider directors have a favorable governance effect on the properties of earnings forecasts. Firms with greater institutional ownership and outside directorship are more likely to issue a forecast and do so consistently. Further, these forecasts tend to be more specific and accurate. The governance measures also mitigate managers' tendency to issue optimistic forecasts. Lastly, our evidence suggests that institutional ownership creates an environment that enhances the credibility of the forecasts.
Author: Bobae Choi
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This paper examines the role of sophisticated investors in pricing future earnings. Using the future earnings response coefficient (FERC) model recently developed by Ettredge et al. (2005), we test the effect of analyst following and institutional ownership on the informativeness of stock returns on future earnings. We find that the informativeness of stock returns on future earnings, measured as the future earnings response coefficient, increases with the analyst following and institutional investors. We also investigate how the recently introduced Regulation Fair Disclosure in Korea affects the informativeness of stock returns on future earnings and its relation with analyst following and institutional investors. The results show that the regulation decreases the future earnings response coefficient in general and its relation with the analyst following, suggesting that their superior ability is impaired after the regulation. Our main results do not change much after controlling for the change in analyst following after the regulation and additional variables such as firm size, growth, earnings variability and accounting conservatism.
Author: Bipin B. Ajinkya
Publisher:
ISBN:
Category :
Languages : en
Pages : 44
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Book Description
This paper investigates the relation between institutional ownership and board of directors' composition and the properties of management earnings forecasts. A firm's optimal disclosure policy is determined by a trade-off between costs and benefits of disclosure. Managers acting in their self-interest may have incentives to distort disclosure policy. Governance mechanisms, to the extent they are effective in protecting the interests of the providers of capital, should mitigate these distortions. We find evidence that institutional ownership and outsider directors are favorably associated with the properties of earnings forecasts. Firms with greater institutional ownership and outside directorship are more likely to issue a forecast and do so consistently. Further, these forecasts tend to be more specific and accurate. The governance measures also mitigate managers' tendency to issue optimistic forecasts.
Author: Lucy F. Ackert
Publisher:
ISBN:
Category : Seasonal variations (Economics)
Languages : en
Pages : 34
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Book Description
Author: Benjamin C. Ayers
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
This paper presents evidence that prices of firms followed by sell-side analysts and favored by institutional investors incorporate future earnings earlier than prices of other firms. Our tests are based on regressions of year t abnormal returns on earnings changes from years t-1, t, and t+1. We find that lead coefficients for firms most heavily followed by analysts or favored by institutions are greater than lead coefficients for firms with little analyst following or institutional holdings. In contrast, contemporaneous coefficients for analyst and institutional favorites are less than contemporaneous coefficients for other firms. Furthermore, the results for analysts and institutions are incremental to each other. In addition, neither effect is due to the fact that price leads are an increasing function of firm size.One possible explanation for our results is that market professionals are more skilled than other investors in analyzing publicly available information. Alternatively, the positive association between price leads and professional interest may exist only because management provides more detailed information to sell-side and buy-side analysts than to individual investors. This possibility prompted the SEC to issue Regulation FD, which creates a more level playing field for all investors by eliminating selective disclosures. Our results, which are based on data prior to the passage of Regulation FD, suggest that the quot;distribution gainquot; sought by the SEC may come with an quot;allocation cost.quot; That is, if Regulation FD causes management to reduce the flow of information to market professionals, the length of price leads could be shortened.
