Analyst Disagreement, Forecast Bias and Stock Returns
- Topics:
- Equity,
- Investment Strategy
- Source:
- Harvard Business School
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Overview: This paper presents evidence of inefficient information processing in equity markets by documenting that biases in analysts' earnings forecasts are reflected in stock prices. In particular, it shows that investors fail to fully account for optimistic bias associated with analyst disagreement. This bias arises for two reasons. First, analysts issue more optimistic forecasts when earnings are uncertain. Analysts with sufficiently low earnings expectations who choose to keep quiet introduce an optimistic bias in the mean reported forecast that is increasing in the underlying disagreement.
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Format: PDF | Size: 517KB | Date: Jun 2004 | Pages: 48
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