Some Determinants of Under-reaction in Security Analysts' Earnings Forecasts PDF Download
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Author: Simon Hussain
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 27
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Book Description
Author: Simon Hussain
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 27
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Book Description
Author: Bong-Heui Han
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Researchers have identified numerous factors associated with security analysts' optimistic bias, including size, earnings-to-price ratio, forecast dispersion, past returns, and past forecast errors. These factors are viewed as having future earnings uncertainty as a common attribute. Empirical evidence consistent with this view is presented. Using these factors as proxies for future earnings uncertainty, univariate tests show that analysts' bias increases as uncertainty increases. Multivariate tests indicate that each of the uncertainty proxies incrementally explains bias, after controlling for the other variables. A model is developed which significantly improves accuracy by reducing both forecast bias and forecast error variance in tests on holdout samples.
Author:
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Category :
Languages : en
Pages :
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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: Michael B. Mikhail
Publisher:
ISBN:
Category :
Languages : en
Pages :
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We examine if analysts more fully incorporate prior earnings and returns information in their current quarter forecasts as their experience following a firm increases. We measure analyst firm-specific forecasting experience as the number of prior quarters for which the analyst has issued an earnings forecast for the firm. We find that analysts underreact to prior earnings information less as their experience increases, suggesting one reason why analysts become more accurate with experience.
Author: Gerald Joseph Lobo
Publisher:
ISBN:
Category : Business forecasting
Languages : en
Pages : 106
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Author: Y. H. Lui
Publisher:
ISBN:
Category : Stock price forecasting
Languages : en
Pages : 32
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Book Description
Author: Sebastian Gell
Publisher: Springer Science & Business Media
ISBN: 3834939374
Category : Business & Economics
Languages : en
Pages : 144
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Book Description
Earnings forecasts are ubiquitous in today’s financial markets. They are essential indicators of future firm performance and a starting point for firm valuation. Extremely inaccurate and overoptimistic forecasts during the most recent financial crisis have raised serious doubts regarding the reliability of such forecasts. This thesis therefore investigates new determinants of forecast errors and accuracy. In addition, new determinants of forecast revisions are examined. More specifically, the thesis answers the following questions: 1) How do analyst incentives lead to forecast errors? 2) How do changes in analyst incentives lead to forecast revisions?, and 3) What factors drive differences in forecast accuracy?
Author: Jeffery Abarbanell
Publisher:
ISBN:
Category : Stocks
Languages : en
Pages : 50
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Author: Li Chen
Publisher:
ISBN:
Category : Corporate profits
Languages : en
Pages : 200
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Book Description
This thesis examines the role of reputation in financial analysts' underreaction in earnings forecasts. Prior research suggests that the reputation effect mitigates short-term economic incentives that lead to overly optimistic forecasts, and hence, increases forecast accuracy (i.e., an aspect of high quality forecasts). In contrast, I hypothesise that certain factors affecting analyst reputation lead to analysts' underreaction. Specifically, when faced with uncertainty, analysts employ underreaction as a mechanism to improve consistency between their forecast revisions and subsequent news (i.e., another aspect of high quality forecasts), so as to protect themselves from incurring a higher reputation cost of inaccuracy for inconsistent versus consistent consecutive forecast revisions and forecast errors (i.e., asymmetric reputation cost). In my first research question, I examine the asymmetric reputation cost theory that predicts underreaction increasing with uncertainty and asymmetric reputation cost. I contextualise my study in business cycles where both factors change. I predict and find that uncertainty is greater during recessions than expansions whereas asymmetric reputation cost is greater during expansions than recessions (i.e., reputation concerns are greater during expansions). Further, I find that analysts' underreaction is greater during expansions than recessions. The implication is that the asymmetric reputation cost, rather than the uncertainty, drives analysts' underreaction. In my second research question, I investigate the differential underreaction to good news versus bad news in relation to short-term economic incentives and the reputation-building incentives simultaneously. If analysts put more emphasis on short-term gains, they will underreact more to bad news than good news, particularly during recessions where the short-term economic incentives are heightened. On the contrary, if analysts are more concerned with their reputations, they will underreact less (more) to bad news than good news during recessions (expansions), because bad (good) news is more likely to follow in bad (good) times and, accordingly, they can incorporate the current bad (good) news with greater confidence. My findings are consistent with the reputation-building incentive theory, but inconsistent with the short-term incentive theory. Robustness tests and further research considering industry/firm specific information provide consistent results. Overall, the thesis suggests that analysts underreact to information due to their reputation concerns.
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.
