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| Author | : Gordon Cohn (M.) |
| Publisher | : |
| Total Pages | : 232 |
| Release | : 1997 |
| Genre | : Accounting and price fluctuations |
| ISBN | : |
| Author | : Shuping Chen |
| Publisher | : |
| Total Pages | : |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
This paper investigates the conclusion in Diether, Malloy, and Scherbina (2002) that dispersion in analysts' forecasts proxies for differences in investor beliefs, and that prices reflect the beliefs of optimistic investors when dispersion is high. If this is the case, we expect to find higher earnings response coefficients (ERCs), related to negative earnings surprises, for high versus low dispersion firms. This follows because the negative earnings surprises are less consistent with the beliefs of optimists. However, we find smaller ERCs, which calls into question the optimism argument in DMS. Further, we find that the relatively low future returns earned by high forecast dispersion firms, documented in DMS, are explained by the well known post-earnings-announcement drift phenomena. Specifically, after sorting observations based on prior period standardized unexpected earnings (SUEs), which are associated with drift, the difference between the future returns of high versus low dispersion firms is not statistically significant.
| Author | : Daniel M. Bryan |
| Publisher | : |
| Total Pages | : |
| Release | : 2006 |
| Genre | : |
| ISBN | : |
This study investigates the influence of analyst forecast dispersion on Ohlson's (2001) proposed linear information dynamics where consensus analyst forecasts are suggested as a proxy for other information. Our results indicate that Ohlson's proposed valuation model is most descriptive of market pricing when forecast dispersion, and hence information asymmetry is high. Our results also suggest that when analysts are confronted with high information asymmetry, they tend to focus less on accounting fundamentals and rely more on other non-accounting information, thus decreasing the correlation between the explanatory power of analyst forecasts and that of earnings and book value.
| Author | : Thomas J. Lopez |
| Publisher | : |
| Total Pages | : 39 |
| Release | : 2001 |
| Genre | : |
| ISBN | : |
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 | : Doron Avramov |
| Publisher | : |
| Total Pages | : |
| Release | : 2020 |
| Genre | : |
| ISBN | : |
This paper shows that the puzzling negative cross-sectional relation between dispersion in analysts' earnings forecasts and future stock returns may be explained by financial distress, as proxied by credit rating downgrades. Focusing on a sample of firms rated by Samp;P, we show that the profitability of dispersion-based trading strategies concentrates in a small number of the worst-rated firms and is significant only during periods of deteriorating credit conditions. In such periods, the negative dispersion-return relation emerges as low-rated firms experience substantial price drop along with considerable increase in forecast dispersion. Moreover, even for this small universe of worst-rated firms, the dispersion-return relation is nonexistent when either the dispersion measure or return is adjusted by credit risk. The results are robust to previously proposed explanations for the dispersion effect such as short-sale constraints and leverage.
| Author | : Davit Adut |
| Publisher | : |
| Total Pages | : |
| Release | : 2003 |
| Genre | : |
| ISBN | : |
Financial analysts are an important group of information intermediaries in the capital markets. Their reports, including both earnings forecasts and stock recommendations, are widely transmitted and have a significant impact on stock prices (Womack 1996; Lys and Sohn 1990, among others). Empirical accounting research frequently relies on analysts' forecasts to construct proxies for variables of interest. For example, the error in mean forecast is used as a proxy for earnings surprise (e.g., Brown et al. 1987; Wiedman 1996; Bamber et al. 1997). More recent papers provide evidence that the mean consensus forecast is used as a benchmark for evaluating firm performance. (Degeorge et al. 1999; Kasznik and McNichols 2002; Lopez and Rees 2002). Another stream of research uses the forecast dispersion as a proxy for the uncertainty or the degree of consensus among analysts and focuses on the information properties of analysts (e.g., Daley et al. 1988; Ziebart 1990; Imhoff and Lobo 1992; Lang and Lundholm 1996; Barron and Stuerke 1998; Barron et al. 1998). In this paper I combine the two streams of research, and investigate how lack of consensus changes the information environment of analysts and whether the markets perceive this change. More specifically, I investigate the amount of private information in a divergent earnings estimate (i.e. one that is above or below the consensus), whether the markets react to it at either the time of the forecast release, at the realization of actual earnings, and whether Regulation Fair Disclosure has changed the information environment differently for high and low dispersion firms.
| Author | : Orie E. Barron |
| Publisher | : |
| Total Pages | : 42 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
Prior research reports seemingly conflicting evidence and interpretations concerning the relation between dispersion in analysts' earnings forecasts and stock returns. Diether et al. (2002) and Johnson (2004) find a negative relation between levels of dispersion in analysts' forecasts and future stock returns. Yet, changes in forecast dispersion are negatively associated with contemporaneous stock returns (L'Her and Suret 1996). We demonstrate that levels and changes in dispersion reflect different theoretical constructs. Changes in dispersion primarily reflect changes in information asymmetry whereas levels of dispersion primarily reflect levels of uncertainty. Further, the uncertainty component of dispersion levels reflects idiosyncratic risk that is negatively associated with future stock returns. These findings provide support for Johnson's (2004) explanation that dispersion levels reflect idiosyncratic uncertainty that increases the option value of the firm and generally refute Diether et al.'s (2002) explanation that dispersion levels reflect information asymmetry.In addition, we reconcile L'Her and Suret's (1996) findings with the findings of Johnson (2004). We find that the negative association between changes in dispersion and contemporaneous stock returns is not due to increased uncertainty but rather increased information asymmetry.
| Author | : Maria Chiara Iannino |
| Publisher | : |
| Total Pages | : 32 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
This paper is an empirical investigation of the relation between the dispersion on analysts' earnings forecasts and the future performance following a change in the nominal price of shares. On a sample of US splits occurred from 1993 to 2013, we observe a change in the distribution of analysts' forecasts after the announcement of the event. In particular, we observe an increase in forecasts' dispersion. We distinguish the two components of private and common information, and we find that asymmetric information significantly increases after the announcement of stock splits, while no change is evinced in uncertainty. While we do not observe any relationship between dispersion and future returns in our sample of stocks, we shed light on the literature on disagreement observing a negative relation between asymmetric information and both future returns and cumulative abnormal returns post-split. We conclude observing that stock splits have a stronger positive effect on future performance for shares with lower prior asymmetric information.
| Author | : Pieter Johannes De Jong |
| Publisher | : ProQuest |
| Total Pages | : |
| Release | : 2007 |
| Genre | : Economic forecasting |
| ISBN | : 9780549145035 |
This research will concentrate on the changes in earnings forecasts, forecast accuracy and forecast dispersion for growth and value stocks after Reg FD. Each topic is presented in a separate essay. The first essay tests if growth and value stock returns respond more to forecasted earnings changes than they do to changes in earnings and whether these stock returns respond in a different fashion before and after Reg FD. This phenomenon is stronger for growth stock portfolio strategies than it is for value stock portfolios. After Reg FD, the overall impact of earnings expectations on stock returns is smaller, especially for growth stock returns. The second essay examines financial analysts' earnings forecast accuracy in value and growth stocks before and after the introduction of Reg FD. Accuracy for both stock groups (value and growth stocks) has improved after the introduction of Reg FD. The results in this essay provide additional evidence indicating that analysts did not just misinterpret available news but consciously tried to maintain relationships with managers. However, Reg FD efficiently limited these relationships between managers of growth firms and analysts so that the monetary advantage from manipulating earnings forecasts before the introduction of Reg FD no longer exists. The third essay evaluates the hypothesis stating that forecast dispersion, on both growth and value stock returns, has increased after the introduction Reg FD. However, the increased dispersion found at the second quarter of 2001 drastically dissipates at the second quarter of 2002, although value stock forecast dispersion before earnings announcement and value stock belief jumbling remain higher. The results in this essay suggest that corporate voluntary disclosure created a greater variety of opinions and, therefore, more uncertainty about value stocks. Also, value stock returns have a stronger inverse relationship with dispersion because financial analysts have become more uncertain about value firms' performance. The bigger the disagreement about a stock's value, the higher the market price relative to the true value of the stock, and the lower its future return.
| Author | : Sebastian Gell |
| Publisher | : Springer Science & Business Media |
| Total Pages | : 144 |
| Release | : 2012-03-26 |
| Genre | : Business & Economics |
| ISBN | : 3834939374 |
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?
