Do Investors Fully Unravel Persistent Pessimism in Analysts' Earnings Forecasts?

• 成果类型: Article
• 署名作者: Veenman, David; Verwijmeren, Patrick
• 署名单位: University of Amsterdam; Erasmus University Rotterdam - Excl Erasmus MC; Erasmus University Rotterdam; University of Melbourne
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-51864
• 发表日期: 2018
• 页码: 349-377
• 关键词: cross-section; MARKET-EFFICIENCY; BIASED EARNINGS; accounting anomalies; Fundamental analysis; ANNOUNCEMENT DRIFT; INFORMATION; returns; management; expectations

摘要

This study presents evidence suggesting that investors do not fully unravel predictable pessimism in sell-side analysts' earnings forecasts. We show that measures of prior consensus and individual analyst forecast pessimism are predictive of both the sign of firms' earnings surprises and the stock returns around earnings announcements. That is, we find that firms with a relatively high probability of forecast pessimism experience significantly higher announcement returns than those with a low probability. Importantly, we show that these findings are driven by predictable pessimism in analysts' short-term forecasts, as opposed to optimism in their longer-term forecasts. We further find that this mispricing is related to the difficulty investors have in identifying differences in expected forecast pessimism. Overall, we conclude that market prices do not fully reflect the conditional probability that a firm meets or beats earnings expectations as a result of analysts' pessimistically biased short-term forecasts.