Analysts Incentives And Systematic Forecast Bias PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Analysts Incentives And Systematic Forecast Bias PDF full book. Access full book title Analysts Incentives And Systematic Forecast Bias.
| Author | : Senyo Y. Tse |
| Publisher | : |
| Total Pages | : 40 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
Download Analysts' Incentives and Systematic Forecast Bias Book in PDF, ePub and Kindle
The likelihood that earnings announcements meet or beat analyst expectations differs substantially and systematically across firms. Prior research explores managers incentives to meet analyst expectations. In this paper, we examine analysts incentives to issue systematically biased earnings forecasts and thereby influence the likelihood that firms report good earnings news. We first document that forecast biases are systematically different, as large firms and firms with low forecast dispersion - labeled high-information firms - are more likely to report positive earning surprises, while small firms and firms with large forecast dispersion - labeled low-information firms - tend to have optimistically biased forecasts that often lead to negative earnings surprises. We also show that potential financing needs induce more optimistic forecasts for low-information firms, but this effect is greatly mitigated for high-information firms. We find that career concerns help explain analysts' systematic forecast bias. An analyst's career longevity is enhanced by issuing pessimistic forecasts for high-information firms and optimistic forecasts for low-information firms. Optimistic forecast bias for high-financing-need firms has no consequence for an analyst's career longevity, but optimistic bias for low-financing-need firms hurts. Our results suggest that career concerns contribute to a systematic pattern of forecasting that aligns with managerial preferences.
| Author | : Claudia Qi |
| Publisher | : |
| Total Pages | : 45 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Download Incentives Or Irrationality? International Evidence from the Impact of Individualism on Analyst Forecast Bias Book in PDF, ePub and Kindle
Based on a unique dataset that identifies the locations of 19,832 financial analysts covering 21,885 firms from 49 countries during 1996-2013, we find that individualism of analysts' country of residence is negatively associated with their earnings forecast optimism and positively associated with their forecast accuracy. Using multiple proxies for economic incentives and cognitive biases, we find that individualism affects analyst forecast optimism and accuracy through the economic incentives that analysts face, rather than their cognitive biases (irrationality). Our results highlight the importance for regulators and investors to factor in culture values when battling against biased analyst research.
| Author | : Murugappa (Murgie) Krishnan |
| Publisher | : |
| Total Pages | : |
| Release | : 1998 |
| Genre | : |
| ISBN | : |
Download A Theory of Analysts Forecast Bias Book in PDF, ePub and Kindle
In this paper, we provide an equilibrium explanation for the observed optimism in analysts' earnings forecasts. Our analysis provides theoretical support to the widely held notion that analysts engage in earnings optimism to gain access to management's private information. We show that a strategic analyst, who is motivated by improving the combined accuracy of his forecasts, issues a biased initial forecast to extract information from management, but issues unbiased forecasts subsequently. The management, on the other hand, provides more access because this optimistic bias reduces the proprietary costs associated with disclosure at the margin. An important element of our model is the assumption that analysts also have private information relevant to assessing firm value. Despite rational expectations about analyst bias, analysts' private information cannot be fully unravelled by other agents due to the noise introduced by the diversity in analysts' incentives.
| Author | : Sebastian Gell |
| Publisher | : Springer Science & Business Media |
| Total Pages | : 144 |
| Release | : 2012-03-26 |
| Genre | : Business & Economics |
| ISBN | : 3834939374 |
Download Determinants of Earnings Forecast Error, Earnings Forecast Revision and Earnings Forecast Accuracy Book in PDF, ePub and Kindle
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 | : Dan Bernhardt |
| Publisher | : |
| Total Pages | : 27 |
| Release | : 2005 |
| Genre | : |
| ISBN | : |
Download Analyst Compensation and Forecast Bias Book in PDF, ePub and Kindle
In a recent paper, Bernhardt et al. (2004) developed a non-parametric test for bias in forecasts by professional financial analysts that is robust to correlated information amongst analysts and information arrival over the forecasting cycle. The tests show that analysts anti-herd: Analysts systematically issue biased contrarian forecasts that overshoot the publicly-available consensus forecast in the direction of their private information. In this campanion paper, we show that for those analysts that report later in the forecast-horizon, a reward scheme that is convex in relative performance may shed some light on this strategic behavior. The pattern and magnitude of the forecast bias in the last forecast are identical to the results in Bernhardt et al., and slightly higher in some sub-samples. An analysis of daily returns around the date of earnings announcement reveals that investors do not fully unravel the bias in late forecasts.
| Author | : Thomas J. Lopez |
| Publisher | : |
| Total Pages | : 39 |
| Release | : 2001 |
| Genre | : |
| ISBN | : |
Download The Effect of Meeting Analyst Forecasts and Systematic Positive Forecast Errors on the Information Content of Unexpected Earnings Book in PDF, ePub and Kindle
This paper focuses on two distinct, but related, issues with respect to managers' incentives to report earnings that meet or exceed analysts' expectations. First, we assess the differential stock price sensitivity to earnings that meet or exceed analysts' expectations compared to those that do not. Second, we examine whether the market implicitly revises analysts' earnings forecasts for firms that systematically report earnings that exceed forecasts. We find that the earnings response coefficient (ERC) is significantly higher for firms that meet analysts' forecasts. Additionally, we find that the market recognizes and adjusts the forecast error of firms that exhibit a systematic pattern of reporting positive or negative unexpected earnings. The market fully adjusts for the systematic component of the forecast error when it is negative; however, only a partial adjustment is made when the systematic component is positive. Overall, our evidence suggests that managers who try to report earnings that meet analysts' forecasts are responding to two market incentives. First, the market provides a premium to positive forecast errors and assigns a higher multiple to the level of positive unexpected earnings. Second, though the market recognizes systematic bias in analysts' forecasts, it does not fully adjust for systematically positive forecast errors. Our evidence provides, at a minimum, a partial explanation for managers' fixation on reporting positive unexpected earnings.
| Author | : Douglas E. Stevens |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2003 |
| Genre | : |
| ISBN | : |
Download Inefficiency in Earnings Forecasts Book in PDF, ePub and Kindle
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 | : Seung-Woog (Austin) Kwag |
| Publisher | : |
| Total Pages | : 39 |
| Release | : 2003 |
| Genre | : |
| ISBN | : |
Download Bias in Analysts' Earnings Forecasts Book in PDF, ePub and Kindle
If either economic incentives or psychological phenomena cause the bias in analysts' forecasts to persist long enough, it would be potentially discoverable and exploitable by investors. quot;Exploitationquot; in this context implies that investors, through examination of historical forecasting performance, can more or less reliably estimate the direction and extent of bias, and impute unbiased estimates for themselves, given analysts' forecasts. The absence of persistence in forecast errors would suggest that analysts' own behavior ultimately quot;self-correctsquot; within a time frame that eliminates the possibility that the patterns could be exploited by investors. We use two look-back methods that capture salient features of analysts' past forecasting behavior to form quintile portfolios that describe the range of analysts' forecasting behavior. Parametric and nonparametric tests are performed to determine whether the two portfolio formation methods provide predictive power with respect to subsequent forecast errors. The findings support a conclusion that analysts' behaviors in both optimistic and pessimistic extremes do not entirely self-correct, leaving open the possibility that investors may find historical forecast errors useful in making inferences about current forecasts.
| Author | : Yannick Malevergne |
| Publisher | : |
| Total Pages | : 42 |
| Release | : 2018 |
| Genre | : |
| ISBN | : |
Download How Analysts' Ability Affects Forecast Timing Under Bias and Uncertainty? Book in PDF, ePub and Kindle
We investigate the analysts timing decisions and the extent to which timing can be a proxy for their ability. We present a model in which forecast accuracy and timing are affected by information uncertainty stemming from (i) the presence of forecast bias and (ii) investors' limited capability to adjust to this bias. We assume that the presence of a bias is inherent in the analysts' objective to maximize their revenue from providing private information to unsophisticated investors. Our analysis contribute to identifying the mechanism by which information uncertainty stemming from biased communication affects the trade-off between timeliness and forecast quality. We find that the optimal forecasting time varies non-monotonically with the analyst's ability to generate new idiosyncratic information as the result of two competing factors: the analyst's incentive to delay the forecast on account of his ability to worth-fully process additional public information versus the incentive to issue the forecast as soon as possible not to impair its value when more information becomes publicly available as time goes by. Both the low and high skill analysts tend to issue their forecast sooner than the analysts with intermediate skills, all the more so the larger the uncertainty about the forecast bias.
| Author | : Dmitri Yu Kantsyrev |
| Publisher | : |
| Total Pages | : |
| Release | : 2007 |
| Genre | : |
| ISBN | : |
Download Systematic Optimism in Financial Analysts' Earnings Forecasts Book in PDF, ePub and Kindle
This study examines forecast errors in financial analysts' annual earnings forecasts and finds that analysts exhibit systematic optimism for a specific subset of companies. The magnitude of the analysts' optimistic forecast bias increases with the difficulty of the forecasting task, which is represented by statistical characteristics of a firm's earnings as well as the overall economic activity. We find that both the mean and median forecast errors are largest for companies with the most volatile earnings that move against or independently of the market earnings. We also develop a model of the analysts' forecasting behavior and provide evidence that the analysts' optimistic forecast error increases in periods of economic downturns, and somewhat slowly decreases throughout the forecast horizon. In contrast to most of the existing literature, which deals with samples, we analyze all available consensus as well as timely constructed forecasts for the 1987-2004 period.
