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Inefficiency In Earnings Forecasts
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Book Synopsis Inefficiency in Earnings Forecasts by : Douglas E. Stevens
Download or read book Inefficiency in Earnings Forecasts written by Douglas E. Stevens and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Inefficiency in Analysts' Earnings Forecasts by : John C. Easterwood
Download or read book Inefficiency in Analysts' Earnings Forecasts written by John C. Easterwood and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A rational analysis of analyst behavior predicts that analysts immediately and without bias incorporate information into their forecasts. Several studies document analysts' tendency to systematically underreact to information and are inconsistent with rationality. Other studies indicate that analysts systematically overreact to new information or that they are systematically optimistic. This study discriminates between these three hypotheses by examining the interaction between the nature of information and the type of reaction by analysts. The evidence indicates that analysts underreact to negative information, but overreact to positive information. These results are consistent with systematic optimism in response to information.
Book Synopsis Market Perceptions of Efficiency and News in Analyst Forecast Errors by : Gia Marie Chevis
Download or read book Market Perceptions of Efficiency and News in Analyst Forecast Errors written by Gia Marie Chevis and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial analysts are considered inefficient when they do not fully incorporate relevant information into their forecasts. In this dissertation, I investigate differences in the observable efficiency of analysts' earnings forecasts between firms that consistently meet or exceed analysts' earnings expectations and those that do not. I then analyze the extent to which the market incorporates this (in)efficiency into its earnings expectations. Consistent with my hypotheses, I find that analysts are relatively less efficient with respect to prior returns for firms that do not consistently meet expectations than for firms that do follow such a strategy, especially when prior returns convey bad news. However, forecast errors for firms that consistently meet expectations do not appear to be serially correlated to a greater extent than those for firms that do not consistently meet expectations. It is not clear whether the market considers such inefficiency when setting its own expectations. While the evidence suggests they may do so in the context of a shorter historical pattern of realized forecast errors, other evidence suggests they may not distinguish between predictable and surprise components of forecast error when the historical forecast error pattern is more established.
Book Synopsis The Inefficient Use of Macroeconomic Information in Analysts' Earnings Forecasts in Emerging Markets by : Gerben J. de Zwart
Download or read book The Inefficient Use of Macroeconomic Information in Analysts' Earnings Forecasts in Emerging Markets written by Gerben J. de Zwart and published by . This book was released on 2010 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents empirical evidence that security analysts do not efficiently use publicly available macroeconomic information in their earnings forecasts for emerging market stocks. Analysts completely ignore forecasts on political stability, while these provide valuable information for firm-level earnings growth. Analysts do incorporate output growth forecasts, but these actually bear no relevant information for firm-level earnings growth. Inflation forecasts are taken into account correctly. In addition, the information environment appears to be crucially important in emerging markets, as we find evidence that analysts handle macroeconomic information in a better way for more transparent firms.
Book Synopsis Earnings Forecasts and Price Efficiency After Earnings Realizations by : Guojin Gong
Download or read book Earnings Forecasts and Price Efficiency After Earnings Realizations written by Guojin Gong and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: When information asymmetry is a major market friction, earnings forecasts can lead to higher price efficiency even after the information in forecasts completely dissipates upon earnings realizations. We show this in an experimental market that features information asymmetry (i.e., some traders possess differential private information). Earnings forecasts reduce information asymmetry and lead to prices that reflect a greater amount of private information. Traders can learn more about others' information from prices. This information learned from past prices continues to reduce information asymmetry and improve price efficiency even after earnings realizations. We contribute to the disclosure literature by showing the evidence that the learning-from-price effect amplifies the impact of public disclosure on price efficiency.
Book Synopsis Interactions Between Analyst Earnings Forecasts and Management Earnings Forecasts by : Lawrence D. Brown
Download or read book Interactions Between Analyst Earnings Forecasts and Management Earnings Forecasts written by Lawrence D. Brown and published by . This book was released on 2014 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine interactions between analyst earnings forecasts and management earnings forecasts by investigating: (1) managers' comparative efficiency relative to analysts at incorporating past earnings changes, accruals, stock returns and analyst-based earnings surprises into their earnings forecasts; (2) extent to which analyst inefficiencies in incorporating these four pieces of publicly available information into their earnings forecasts prompt managers to issue earnings forecasts; and (3) role of these four pieces of information at improving analyst forecasts after they have observed management forecasts. We show that: (1) unlike analysts, managers do efficiently incorporate information from past returns into their earnings forecasts; (2) analysts' failure to incorporate past returns information into earnings forecasts is the primary trigger for managers to issue their own earnings forecasts; and (3) after management forecasts, analyst forecasts improve most significantly with respect to incorporating past returns information.
Book Synopsis Industry's Earnings Forecasts and Market Efficiency by : Antonio Baldaque da Silva
Download or read book Industry's Earnings Forecasts and Market Efficiency written by Antonio Baldaque da Silva and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter, I use historical price, accounting and macroeconomic data to construct alternative forecasts. Using the random walk model as the benchmark, I construct alternative forecasts that significantly increase forecast accuracy in a simulated out-of-sample setting. The most successful alternative combines the forecasts for all industries taking into consideration the "economic" distance between industries.
Book Synopsis Biased Forecasts or Biased Earnings? The Role of Reported Earnings in Explaining Apparent Bias and Over/Underreaction in Analysts' Earnings Forecasts by : Jeffery S. Abarbanell
Download or read book Biased Forecasts or Biased Earnings? The Role of Reported Earnings in Explaining Apparent Bias and Over/Underreaction in Analysts' Earnings Forecasts written by Jeffery S. Abarbanell and published by . This book was released on 2012 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We demonstrate the role of three empirical properties of cross-sectional distributions of analysts' forecast errors in generating evidence pertinent to three important and heretofore separately analyzed phenomena studied in the analyst earnings forecast literature: purported bias (intentional or unintentional) in analysts' earnings forecasts, forecaster over/underreaction to information in prior realizations of economic variables, and positive serial correlation in analysts' forecast errors. The empirical properties of interest include: the existence of two statistically influential asymmetries found in the tail and the middle of typical forecast error distributions, the fact that a relatively small number of observations comprise these asymmetries and, the unusual character of the reported earnings benchmark used in the calculation of the forecast errors that fall into the two asymmetries that is associated with firm recognition of unexpected accruals. We discuss competing explanations for the presence of these properties of forecast error distributions and their implications for conclusions about analyst forecast rationality that are pertinent to researchers, regulators, and investors concerned with the incentives and judgments of analysts.Previously titled quot;Biased Forecasts or Biased Earnings? The Role of Earnings Management in Explaining Apparent Optimism and Inefficiency in Analysts' Earnings Forecastsquot.
Book Synopsis Sources of Earnings Variability and Their Effect on Earnings Forecasts by : Hwee Cheng Tan
Download or read book Sources of Earnings Variability and Their Effect on Earnings Forecasts written by Hwee Cheng Tan and published by . This book was released on 2017 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous research shows that analysts' forecasts of earnings do not fully incorporate information contained in reported earnings variability. This study investigates whether the inefficient forecasting is due to a failure to incorporate observable information on two components of earnings variability, namely, variability in operating performance and income smoothing. Our portfolio results show that analysts' forecasts fully incorporate information contained in earnings variability for firms with high income smoothing, and for firm with low variability in operating performance. Analysts also appear to recognize the permanence of earnings associated with firms with low variability in operating performance, and use this information to correct for past forecast errors.
Book Synopsis Crowdsourced Earnings Forecasts by : Rajiv D. Banker
Download or read book Crowdsourced Earnings Forecasts written by Rajiv D. Banker and published by . This book was released on 2018 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate how the arrival of Estimize, a provider of crowdsourced earnings forecasts, impacts IBES analysts' forecast timeliness and facilitates market efficiency. We find that IBES analysts become more responsive to earnings announcements and start issuing their quarterly forecasts earlier when faced with competition from Estimize. The Estimize effect is strongest when Estimize quarterly forecasts pose a direct competitive threat to IBES -- when Estimize forecasts are present within 3 days of earnings announcements (i.e., are issued early). Specifically, IBES analysts become more responsive to earnings announcements post Estimize, and issue more than 9% of their one-quarter-ahead forecasts earlier in the quarter when early Estimize coverage is present in the prior quarter. We also document that this increased responsiveness of IBES analysts facilitates market efficiency as it results in greater immediate market reaction to earnings surprises and mostly eliminates the post-earnings-announcement drift.
Book Synopsis Separating the Effects of Asymmetric Incentives and Inefficient Use of Information on Financial Analysts' Consensus Earnings Forecast Errors by : Stanimir Markov
Download or read book Separating the Effects of Asymmetric Incentives and Inefficient Use of Information on Financial Analysts' Consensus Earnings Forecast Errors written by Stanimir Markov and published by . This book was released on 2005 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research on financial analysts' consensus earnings forecast errors has tended to explore either incentives-based or inefficient information use-based explanations for the properties of the analysts' forecast errors. This has limited our understanding of financial analysts' expectation formation process as incentives and cognitive biases are likely to simultaneously affect the properties of the analysts' consensus forecast errors. Our main contribution is in separating these two effects. In particular, using consensus quarterly earnings forecast data, we document that analysts have asymmetric loss function, and that they do not fully use past earnings and forecast errors information in minimizing their expected loss.
Book Synopsis Market and Analyst Reactions to Earnings News by : Jing Liu
Download or read book Market and Analyst Reactions to Earnings News written by Jing Liu and published by . This book was released on 2004 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study compares the efficiency with which the stock market and financial analysts react to corporate earnings announcements. Results show that the market is more efficient and reacts more rapidly to earnings news than financial analysts. In particular, in pre-announcement quarters (inclusive of announcement day), the market reacts more than analysts, and in post-announcement quarters, analysts gradually catch up. This result is robust across all measures of analyst earnings forecasts and under alternative specifications. Results further show that prior research reached the opposite conclusion because of two questionable research design choices: 1) limiting the window to the first post-announcement quarter (a window too narrow to capture market or analysts' complete reactions); and 2) consideration of just one-quarter-ahead earnings forecasts (an approach that ignores forecasts at other horizons).
Book Synopsis 10K Complexity and the Market Efficiency and Information Asymmetry Implications of Analysts' Annual Earnings Forecasts by : Jamie Diaz
Download or read book 10K Complexity and the Market Efficiency and Information Asymmetry Implications of Analysts' Annual Earnings Forecasts written by Jamie Diaz and published by . This book was released on 2019 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines whether 10K complexity has unintended consequences in terms of impairing price discovery in capital markets. More specifically, we examine the impact -- on market efficiency and information asymmetry -- of sell-side financial analysts' first revised forecasts following publication of high- versus low-complexity 10Ks. We hypothesize that: (1) analyst underreaction to 10K-related information increases with complexity, (2) the impact of analyst underreaction on stock price efficiency increases with 10K complexity, and (3) the generally mitigating effect of analysts' forecasts on information asymmetry documented in prior literature dissipates with 10K complexity. Our results are consistent with these hypotheses. Together, our results suggest that analyst forecasting behavior in response to complex 10K-related information constrains price discovery by creating market frictions due to market inefficiency and information asymmetry.
Book Synopsis A Behavioral Model of Earnings Forecasts by : Masako N. Darrough
Download or read book A Behavioral Model of Earnings Forecasts written by Masako N. Darrough and published by . This book was released on 2009 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Analysts' forecasts of earnings play a key role in determining stock market valuations. In recent research, forecast errors have played an important part in explaining momentum and mean-regression effects in asset returns. Given that substantial amounts of wealth ride on the accuracy of these forecasts, it is to be expected that they will conform closely to normative canons of optimality. The evidence suggests that this is not the case. Earnings forecasts have been found to be both biased and inefficient. In this paper, we focus on the earnings forecasts of major market indices such as the Samp;P500 made by bottom-up analysts (insiders) and top-down market strategists (outsiders). The bottom-up forecasts are aggregates of the forecasts of individual company earnings made by those analysts who follow each company, whereas top-down forecasts are the forecasts made by market strategists who estimate the earnings of the major market indices directly. We present a behavioral model of forecasting that characterizes monthly forecasts by three parameters. Although the general pattern of errors is similar, we find that incentives seem to matter. Insiders appear to be more optimistic than outsiders. Since neither top-down nor bottom-up forecasts is optimal, there is hope that a combination of these forecasts will reduce forecast errors. We confirm that this is indeed the case by generating hybrid forecasts that combine the two forecasts. We conjecture that such a method can be used to develop superior forecasts not just of the earnings of market indices, but of individual companies as well.
Book Synopsis The Efficiency of Earnings Forecast Pricing by : Charles Hsu
Download or read book The Efficiency of Earnings Forecast Pricing written by Charles Hsu and published by . This book was released on 2013 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research has suggested that the information content associated with analysts' forecast revisions is not immediately incorporated into a firm's stock price. We find that the apparent anomaly is concentrated in low-priced firms that receive favorable earnings revisions. Variables (such as analyst coverage and celebrity status) cannot reliably explain variations in price formations. Finally, we find that the magnitude of the post-forecast revision drift has decreased after 2002. Overall, our results suggest that the analysts' forecast revisions anomaly can be explained by a combination of random statistical variations and transaction costs.
Book Synopsis Forecasting Quarterly Earnings Per Share and an Investigation of Market Efficiency by : John Edward Schlater
Download or read book Forecasting Quarterly Earnings Per Share and an Investigation of Market Efficiency written by John Edward Schlater and published by . This book was released on 1977 with total page 480 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis An Investors Loss Function for Earnings Forecasts with an Empirical Application by : James C. McKeown
Download or read book An Investors Loss Function for Earnings Forecasts with an Empirical Application written by James C. McKeown and published by . This book was released on 1979 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
