Do analysts treat winners and losers differently when forecasting earnings?

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We investigate whether the well-known positive association between past stock returns and analysts' earnings forecast revisions differs for stocks that have experienced extreme positive (or negative) price changes. We document an asymmetry in this association depending on whether a stock experienced consecutive rounds of capital gains (winner) or losses (loser): the association is strong for losers, but weak for winners. We also find that earnings forecasts are less accurate for analysts who treat winners and losers differently from moderately-performing stocks. However, the degree of such aberrant reactions to winners and losers and the consequent detrimental effect on the forecasting accuracy are less acute for analysts who have more forecasting experience with winners and losers. Finally, consistent with the efficient market hypothesis (EMH), we find that investors discount earnings forecast revisions by analysts who treat winners and losers differently, particularly after 2003, coinciding with the Global Settlement that aims to improve the integrity of analyst research and investors' financial literacy.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2015-04
Language
English
Article Type
Article
Keywords

CAPITAL-MARKETS RESEARCH; STOCK RECOMMENDATIONS; INDIVIDUAL ANALYSTS; INVESTOR SENTIMENT; PRICE CHANGES; REVISIONS; ACCURACY; RETURNS; RESPOND

Citation

INTERNATIONAL JOURNAL OF FORECASTING, v.31, no.2, pp.531 - 549

ISSN
0169-2070
DOI
10.1016/j.ijforecast.2014.02.006
URI
http://hdl.handle.net/10203/199787
Appears in Collection
MT-Journal Papers(저널논문)
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