analysts weighting of private and public information using both a linear regression method and a probability based method we find that on average analysts place larger than efficient weights on i e they overweight their private information when they forecast corporate earnings we also find that analysts overweight more when issuing forecasts more favorable than the consensus and overweight less and may even underweight private information when issuing forecasts less favorable than the consensus further the deviation from efficient weighting increases when the benefits from doing so are high or when the costs of doing so are low these results suggest that analysts incentives play a larger role in misweighting than their behavioral biases copyright 2006 oxford university press

information precision transaction costs and trading volume abstract most theoretical models of trade pfleiderer 1984 grundy and mcnichols 1989 holthausen and verrecchia 1990 kim and verrecchia 1991 blume et al 1994 imply that the trading volume prompted by a public announcement is positively related to the announcement s precision relying upon this notion empirical researchers interpret high trading volume as an indication that an announcement is highly informative we argue that such interpretations are not in general correct in a world with transaction costs the relation between information precision and trading volume is ambiguous and can be negative this explains why in empirical tests using data from actual markets the relation between announcement precision and trading volume is not monotonically positive even though in laboratory experiments it is our results imply that trading volume reactions to public announcements are most sensitive to announcement precision among low transaction cost securities and in low cost trading regimes

forecast accuracy of individual analysts in nine industries the purpose of this paper is to investigate whether financial analysts with superior earnings forecasting ability can be distinguished on the basis of ex post forecast accuracy i explore the question by estimating and comparing average accuracy across individuals and by considering whether the observed distribution of analyst forecast accuracies differs from the distribution expected if their relative performances each year were purely random overall i do not find systematic differences in forecast accuracy across individuals financial press coverage suggests there are superior financial analysts for example institutional investor s annual all american research team includes analysts rated by money managers as superior on a variety of criteria including earnings forecasting ability to pick stocks and the quality of written reports clearly financial analyst services other than forecast accuracy are valued by their clients i focus on only one activity earnings forecasting for two reasons first forecast data are available quantitative and can be evaluated against observable earnings outcomes services such as insightful well written research reports are harder to evaluate quantitatively second academic use of analyst forecasts as earnings expectations data in capital markets empir

the predictability of interim earnings over alternative quarters this study examines the predictability of earnings per share for the first second third and fourth quarterly reporting periods forecasts of quarterly earnings per share both by security analysts and time series models are analyzed the next section of the paper deals with the question of whether there is a significant difference in the accuracy with which each quarter can be forecasted the data in this section strongly indicate that such a difference exists the third section explores explanations for the findings of section 2 these include the relationship between fourthquarter variability and the integral versus discrete reporting methods section 4 contains the summary and conclusions

the information content of annual earnings releases a trading volume approach this paper reports the results of an empirical examination of the relations between the volume of securities traded the magnitude of surprises in annual earnings announcements and firm size although early trading volume studies e g beaver 1968 kiger 1972 and foster 1973 replicated basic information content studies with findings similar to those based on security prices we should not expect that security price and trading volume research will continue to yield identical results when more refined hypotheses are tested trading volume reflects investors activity by summing all market trades whereas security prices reflect an aggregation or averaging of investors beliefs as a result we will on occasion observe differences between price and volume reactions to earnings announcements as did morse 1981 this study extends the recent trend toward tests of more refined hypotheses by using a larger sample to examine the associations between unexpected earnings firm size and trading volume and testing whether such associations can be generalized across fiscal year end dates and stock exchange listing my results show a continuous positive relationship between trading

a theory of trading volume a theory of trading volume is developed based on assumptions that market agents frequently revise their demand prices and randomly encounter potential trading partners the model describes two distinct ways informational events affect trading volume one is consistent with conjectures made by empirical researchers that investor disagreement leads to increased trading but the observation of abnormal trading volume does not necessarily imply disagreement and volume can increase even if investors interpret the information identically if they also have had divergent prior expectations simulation tests support the model and are used to contrast the random pairing environment with costless market clearing volume is lower in the costly market and volume increases caused by an informational event persist after the event period this is consistent with existing empirical evidence and suggests that markets do not immediately clear all orders or that investors have demands to recontract

the impact of the u s employment report on exchange rates abstract the impact of the u s employment report and analyst forecasts of that report s major statistics on pound dollar yen dollar and euro dollar exchange rates are explored while the nonfarm payroll employment figure has the greatest impact we find that the exchange rates also react to the announced revision to last month s payroll figure and to the unemployment rate in all three markets the exchange rate response to the payroll employment figure is strongly conditioned on pre release analyst uncertainty the median analyst forecast from bloomberg anticipates over 80 of the monthly variation in the payroll figure and is basically unbiased the markets appear to respond to these analyst forecasts prior to the government release analyst forecast dispersion tends to increase following large forecast errors indicating that when the announced figure is far from what analysts expected they tend to disagree on the implications for future payroll levels

emission permits and the announcement of realized emissions price impact trading volume and volatilities abstract this paper investigates the impact of the yearly announcement of realized emissions on the european carbon permit market we find that this event generally leads to significant absolute abnormal returns on the event day which are accompanied by increased trading volumes and high intraday volatilities to the contrary trading is particularly calm on the days before the event as suggested by significantly lower trading volumes and volatilities the high event day volatility is expected by the market and incorporated in emission permit option prices in line with these significant market reactions we provide evidence that the emissions announcement has an outstanding information content for the market compared to other relevant news events

do equity markets respond to earnings paths we present our investigation of whether the u s equity market responds to the path of earnings information an earnings path consisted of two consecutive quarters of earnings announcements adjusted for expectations and seasonality by using analysts consensus forecasts after controlling for the information content over the period we found that security returns for the two quarter period are affected by the earnings path the path dependent security returns are more evident for smaller firms and the path dependence persists after controlling for firm size and investor anticipation of future earnings surprises

does anticipated information impose a cost on risk averse investors a test of the hirshleifer effect this paper theoretically and empirically investigates how the risk of future adverse price changes created by the anticipated arrival of information influences risk averse investors trading decisions in institutionally imperfect capital markets specifically i examine how the selling activity of individual investors immediately following an earnings announcement is influenced by the tradeoff between risk sharing benefits of immediate trade and explicit transaction costs imposed on such trades consistent with my theoretically derived predictions i find that investors current trading decisions are less sensitive to the incremental transaction costs created by short term capital gains taxes on trading profits as both the duration and intensity of the risk of future adverse price changes increase this evidence is consistent with an incremental cost to investors that results from the revelation of precise information which is commonly referred to as the hirshleifer effect

security analyst superiority relative to univariate time series models in forecasting quarterly earnings abstract this paper provides evidence of security analyst sa superiority relative to univariate time series ts models in predicting firms quarterly earnings numbers and shows that sa forecast superiority in our sample is attributable to 1 better utilization of information existing on the date that ts model forecasts can be initiated a contemporaneous advantage and 2 use of information acquired between the date of initiation of ts model forecasts and the date when sa forecasts are published a timing advantage

an information interpretation of financial analyst superiority in forecasting earnings the results of recent empirical tests comparing the accuracy of financial analysts forecasts faf of firm earnings to the accuracy of predictions from univariate time series ts forecasting models are consistent with faf forecast superiority see brown et al 1987a and their references the source of this apparent superiority however is not well understood an issue related to earnings forecast superiority is that of determining the most accurate surrogate for the earnings expectations of capital market participants researchers have compared the association between earnings surprise and stock returns across alternative surrogates for earnings expectations and have argued that the best surrogate is generated from the earnings forecast model whose errors exhibit the highest

an evaluation of univariate time series earnings models and their generalization to a single input transfer function the development of statistical models for accounting earnings has been an evolving process earlier studies used simple index and or naive models e g ball and brown 1968 and brown and kennelly 1972 because of the lack of tools to deal with formal time series later dopuch and watts 1972 ball and watts 1972 and others employed formal time series models to annual earnings and collins and hopwood 1980 brown and rozeff 1979 foster 1977 griffin 1977 and watts 1975 did the same with quarterly earnings while this research has produced some conclusions with respect to the time series properties of earnings and how these may be used in predicting earnings brown and rozeff 1978 and then collins and hopwood 1980 recently provided evidence that financial analysts can produce forecasts more accurate than those based on the arima models alone this suggests that other information may be useful in providing estimates of future earnings when incorporated with knowledge of the time series properties of earnings the purpose of this study is twofold a we first evaluate the models used in past studies of quarterly time series of earnings in order to determine whether they are systematically misspecified due to the omission of other information which is implicitly contained in a market earnings index the evidence suggests that the misspecification exists and b we introduce a transfer function model which utilizes the timeseries properties of both the index and earnings numbers this model is obtained based on both theoretical derivation and inspection of data

analysts use of managerial bonus incentives in forecasting earnings abstract this study presents evidence on whether analysts earnings forecasts anticipate management s discretionary accruals choices if analysts anticipate discretionary accruals earnings forecast errors are composed of at least two parts cash flow and discretionary accruals forecast errors management s bonus maximizing incentives allow for identification of circumstances in which discretionary accruals forecast errors are expected to offset cash flow forecast errors and circumstances in which they are expected to exacerbate cash flow errors controlling for the unexpected cash flow variability the empirical results are consistent with these predictions

systematic share price fluctuations after bankruptcy filings and the investors who drive them beginning in the 1990s firms often continue to trade on the major national exchanges after chapter 11 bankruptcy filings for bankruptcies filed from 1993 2003 we find that the more negative the filing period price reaction the more favorable the immediate post filing returns on average this reversal is not attributable to bid ask bounce it holds after controlling for other factors associated with post filing returns and it appears more attributable to the activities of large traders than to small traders supplementary tests reveal that the pattern of post filing returns differs significantly for bankruptcies filed in bull versus bear markets bankruptcies filed during the 1993 to 1999 bull market enjoy substantial but short lived reversals averaging one third of the filing period price plunge these reversals are inconsistent with efficient assimilation of the bankruptcy information in contrast we find no evidence of post filing reversals for bankruptcies filed from 2000 to 2003

analyst forecast errors and stock price behavior near the earnings announcement dates of lifo adopters between june 1974 and may 1975 over 400 firms on the new york and american stock exchanges adopted the last in first out lifo inventory costing method responding to the first round of double digit inflation since wwii these firms were able to assign their newer and thus higher inventory costs to units sold thereby realizing substantial tax savings 1 however ricks 1982 found that stock returns near the earnings disclosure dates of 1974 lifo adopters were negative and significantly lower than returns near the earnings disclosure dates of firms not using lifo given that firms adopting lifo in 1974 were voluntarily switching to an accounting method providing often significant tax savings it is not obvious why investors would have reacted negatively nor is it likely that investors were unaware of many of the firms lifo adoption decisions stevenson 1987 found that at least two thirds of the firms in ricks sample had disclosed their lifo adoptions prior to their earnings disclo sure dates if investors were reacting to the effects of the lifo adoptions why did they react negatively given the increased cash flows and prior disclosures if investors were not reacting to the effects of the lifo adoptions what caused the significant negative excess returns near the earnings disclosure dates of firms adopting lifo in 1974 this study presents evidence suggesting that the negative excess re turns observed by ricks 1982 were associated with and possibly due to analysts systematic overestimates of earnings of firms adopting lifo in 1974 we are aware of no previous study documenting systematic errors in analysts earnings forecasts conditional on a voluntary account ing method change as a first step we assess the generality of ricks finding by examining excess returns near the preliminary earnings disclosure dates hereafter prelim dates of all new york nyse and american stock exchange amex firms adopting lifo between 1973 and 1980 the results confirm negative excess returns around the prelim dates of firms adopt ing lifo in 1974 there is little evidence of significant excess returns negative or positive near the prelim dates of firms adopting lifo in other years to explain the negative returns of the 1974 adopters we examine the association between excess returns and earnings forecast errors we find that standard poor s analysts systematically overestimated the earn ings of these firms analyst forecast errors are found to be significantly correlated with both the excess returns around the prelim dates and the earnings reductions due to the lifo adoptions finally we offer two possible explanations for the negative excess returns and the positive correlations between excess returns analyst earnings forecast errors and earnings effects of the 1974 lifo adoptions first the limited availability of information regarding the likely earnings effects of the 1974 lifo adoptions combined with the relative novelty of this accounting change may have led analysts and investors to underestimate the lifo earnings effects and may have made it difficult for the market to discern immediately the cause of the resulting negative forecast errors evidence consistent with this limited information hypothesis is found in the predictions of value line analysts of lifo earnings effects the actual mean earnings per share effect of the lifo adoptions 947 was 62 higher than the average value line estimate 584 however tests for the stock price reversals which would be implied by the limited information explanation are inconclusive a second possible explanation is that the magnitudes of lifo earnings effects were caused by and or provided implications regarding another factor which was important in valuing the firms yet difficult for analysts and investors to predict inflation is suggested as the likely candidate since lifo tax savings are a function of the rate at which inventory costs are increasing firms experiencing higher rates of inflation would have greater incentives to adopt lifo 4 thus the self selected sample of firms which adopted lifo in 1974 may include firms most affected by that year s surge of inflation since the extent to which inventory costs have increased is reflected in the magnitudes of the earnings effects of lifo adoptions the negative analyst forecast errors and the positive correlation between these forecast errors and the earnings effects of lifo adoptions could be explained by analyst underestimates of the rates of inflation experienced by these firms evidence consistent with this inflation hypothesis is found in the fact that managers of firms adopting lifo underestimated the impact of inflation on their own firms in addition negative excess returns and earnings overestimates are observed for a sample of established lifo users consistent with analysts and investors being surprised by the impact of inflation on these firms as well however aggregate tests based on cross industry correlations between changes in wholesale prices and lifo related variables are generally inconclusive

market evidence on the effective maturity of bank assets and liabilities the recent years increase in interest rate volatility has intensified concern over the exposure of commercial banks to interest rate or funding risk since the effect of interest rate changes on the equity value of a bank depends on the maturity or duration of the bank s assets and liabilities assessing an individual bank s interest rate risk exposure requires information about the maturity composition of its portfolio it is difficult however to assess a bank s risk exposure from balance sheet data because several important asset and liability items have theoretically ambiguous effective maturities in a frictionless market a security s effective maturity will equal its stated maturity or time to repricing with market imperfections e g depositors transaction or information costs however the equilibrium cost of some deposit items may respond sluggishly or incompletely to market rate changes see hester and pierce 1975 or flannery 1982 such liabilities market values discounted at market rates would therefore fluctuate with the level of interest rates these liabilities are sometimes called core deposits which manifest sticky responses to market rate changes we define an asset or liability s effective maturity as the maturity of a fixed rate perfectly elastically supplied security with the same market value elasticity as the bank balance sheet item under consideration naturally a balance sheet item s effective maturity is the relevant determinant of its contribution to the bank s overall interest rate risk sensitivity

securitization and bank performance theory suggests that securitization provides financial institutions with an opportunity to lower the cost of funding improve credit risk management and increase profitability in practice however it might lead to adverse consequences through a number of indirect channels therefore the net impact of securitization on bank performance is ambiguous this study aims to evaluate whether banks improve their performance through the use of the securitization market by applying a propensity score matching approach in other words we build a counterfactual group of banks to assess what would have happened to the securitizing banks had they not securitized using us commercial banking data from 2001 to 2008 we first test these hypotheses using univariate analysis and find that securitizing banks are on average more profitable institutions with higher credit risk exposure and higher cost of funding however the propensity score matching analysis does not provide evidence of significant causal effects of securitization on the performance of banks therefore securitization does not seem to outperform alternative funding risk management and profitability improvement techniques used by banks that have ex ante similar characteristics to those securitizing our evidence raises important questions about the motives for banks increasing securitization activities and consequent implications for the banking system

large and small baseload power plants drivers to define the optimal portfolios despite the growing interest in small medium sized power plants smpp international literature provides only studies related to portfolios of large plants in infinite markets grids with no particular attention given to base load smpp this paper aims to fill this gap investigating the attractiveness of smpp portfolios respect to large power plant portfolios the analysis includes nuclear coal and combined cycle gas turbines ccgt of different plant sizes the mean variance portfolio theory mvp is used to define the best portfolio according to internal rate of return irr and levelised unit electricity cost luec considering the life cycle costs of each power plant carbon tax electricity price and grid dimension the results show how large plants are the best option for large grids while smpp are as competitive as large plants in small grids in fact in order to achieve the highest profitability with the lowest risk it is necessary to build several types of different plants and in case of small grids this is possible only with smpp a further result is the application of the framework to european oecd countries and the united states assessing their portfolios

toward a model of risk in declining organizations an empirical examination of risk performance and decline scholars who study organizational decline have argued that declining organizations reduce or eliminate their riskier activities such as innovation further they cite reduced risk taking as a primary contributor to further decline scholars with an interest in risk per se come to the opposite conclusion low performing firms often take more risks than other firms and such risks reduce subsequent performance this study attempts to resolve these conflicting views by examining the risk of firms in decline our model based on cyert march s cyert r m j g march 1963 a behavioral theory of the firm prentice hall englewood cliffs nj behavioral theory of the firm includes six basic variables 1 performance 2 slack 3 aspirations 4 expectations 5 risk income stream uncertainty and 6 organization size as a measure of decline the estimated model includes prior levels of risk and performance in the risk and performance equations respectively as controls this study uses data on 34

earnings news and small traders an intraday analysis abstract this study separates trading volume into buyer and seller initiated activities and examines the directional volume reaction in small and large trades to different types of earnings news good bad news triggers brief but intense buying selling in the large trades however a persistent period of unusually high buying activity is observed in the small trades irrespective of the news this anomalous proclivity of small traders to buy is robust across firm size trading volume and different earnings expectation models several explanations are discussed although the behavior does not seem fully explained by existing theories

intradaily price volume adjustments of nyse stocks to unexpected earnings the speed and path of adjustment in stocks to the degree of earnings surprise in their quarterly announcements are studied using price volume transactions data a differential price adjustment process was observed with stocks having large positive earnings surprises experiencing a faster adjustment compared with those stocks with negative earnings surprises volume transaction frequency and size were found to be directly related to the absolute degree of surprise but very favorable earnings surprise stocks experienced initially a large number of smaller trades while stocks with large unfavorable earnings surprises had relatively fewer transactions but higher volume per trade the stock market s microstructure has received increasing attention from researchers especially from an empirical perspective as transaction data on prices and volume have become more readily available 1 an important subset of this research has been the study of stock price adjustments to significant news events specifically publicly announced information with economic content should be quickly reflected in prices in an unbiased manner this paper contains a study of the intradaily adjustment in stocks to the informational content of earnings reports using price changes trading volume and transaction frequency and size we examine the transaction to transaction and time series stock behavior associated with different degrees of earnings surprise embedded in earnings announcements the degree of surprise is measured by a comparison of actual with forecasted earnings for 325 new york stock exchange nyse firms these firms are subdivided into five earnings surprise categories in order to determine whether the speed and path of their price volume adjustment processes are different one question of interest is whether the adjustment process for favorable versus unfavorable earnings surprises is similar or different another is whether any adjustment is distinguished by a few large trades or a large number of smaller

bond and stock market response to unexpected earnings announcements this study examines whether earnings changes convey information in bond markets and finds a significant positive negative reaction to unexpected earnings increases decreases the results are consistent whether earnings announcements precede or follow dividend announcements thus earnings surprises convey information to bond markets and changes in firm value are split among bondholders and stockholders this is in contrast to evidence from studies examining unexpected dividend announcements where bond price reaction is asymmetric cross sectional analysis reveals that bond excess returns are positively related to earnings surprises i introduction stock market reaction to earnings announcements has received significant attention in the finance and accounting literature ball and brown 1968 brown 1978 watts 1978 aharony and swary 1980 and fried and givoly 1982 are some ofthe studies that observe a revision of stock prices associated with the release of earnings information lev 1989 provides a survey of research in this area the explanation for the above empirical findings is that unexpected earnings provide new information about future cash flows furthermore the classical discounted cash flow model predicts a revision in firm value that is the present value of expected future cash flows whether this increased firm value accrues to stockholders and bondholders is an empirical issue past research on the information content of earnings has focused solely on stock price behavior and finds at least part of the benefits accrue to stockholders in this study we examine the bond market reaction to unexpected quarterly earnings announcements the study is unique for several reasons first dividends repurchases and earnings are eonsidered primary mechanisms used by manage ment to convey information about future cash flows to securityholders recent

career concerns of banking analysts we study how career concerns influence banking analysts forecasts banking analysts first last earnings forecast of the year is relatively more optimistic pessimistic for a bank that could be their future employer this pattern is not observed when the same analysts forecast earnings of banks unlikely to be their future employer we use the global settlement as an exogenous shock on career concerns and show that this forecast pattern is more pronounced after the settlement moreover we find evidence that analysts benefit from this behavior as analysts that are more biased in their forecasts of potential future employers are more likely to move to a higher reputation bank

intraday futures market behaviour around major scheduled macroeconomic announcements australian evidence abstract this paper examines intraday futures market behaviour around major scheduled macroeconomic information announcements on the sydney futures exchange sfe prior literature analysing intraday price behaviour around announcements is extended to trading volume and quoted bid ask spreads the analysis of price volatility trading volume and quoted bid ask spreads indicates that the majority of adjustment to new information occurs rapidly within 240 seconds of the scheduled time for major announcements with some evidence of abnormal activity prior to announcements analysis of quoted bid ask spreads suggests that they significantly widen in the 20 seconds prior to announcements and remain significantly wider for 30 seconds following announcements the increase in quoted spreads is related to both expected and unexpected volatility implying that market participants increase quoted spreads around information announcements as a consequence of adverse selection costs

the relative and complementary performance of analyst and security price based measures of expected earnings abstract this paper evaluates the relative performance of ibes consensus financial analyst forecasts and forecasts based upon the anticipatory behaviour of security prices according to two criteria a the accuracy of earnings growth predictions and b the contemporaneous association between unexpected earnings and security returns during the forecast year results are presented for firms in differing size groups measured here by market capitalization the results indicate that neither forecast source is superior to the other in terms of either criterion there is however significant complementarity of financial analyst and price based forecasts

earnings surprise research synthesis and perspectives an investigation of the relation between earnings surprise and three empirical anomalies the p e effect the size effect and the value line enigma indicates that the standardized unexpected earnings sue effect appears to be separate and distinct from each of the three the relations between the sue phenomenon and firm risk the appropriateness of the earnings expectations model and the role of transaction costs are also investigated the sue phenomenon is not attributable to inappropriate risk adjustment use of the wrong earnings expectations model or ignoring transaction costs the sue effect may be partly explained by analysts behavior and is both predictable and profitable the sue effect has also been observed in japan

trading volume definitions data analysis and implications of portfolio theory we examine the implications of portfolio theory for the cross sectional behavior of equity trading volume two fund separation theorems suggest a natural definition for trading activity share turnover if two fund separation holds share turnover must be identical for all securities if k 1 fund separation holds we show that turnover satisfies an approximately linear k factor structure these implications are examined empirically using individual weekly turnover data for nyse and amex securities from 1962 to 1996 we find strong evidence against two fund separation and a principal components decomposition suggests that turnover is well approximated by a two factor linear model if price and quantity are the fundamental building blocks of any theory of market interactions the importance of trading volume in modeling asset markets is clear although most models of asset markets have focused on the behavior of returns predictability variability and information content their implications for trading volume have received far less attention in this article we derive the implications of various asset market models for volume and quantify their importance using recently available volume data for individual securities from the center for research in security prices crsp although the volume literature is voluminous 1 we hope to add to this literature in two ways first we develop the volume implications of popular asset market models rather than construct more specialized and often stylized models to

earnings predictability information asymmetry and market liquidity we investigate the relation between earnings predictability information asymmetry and the behavior of the adverse selection cost component of the bid ask spread around quarterly earnings announcements for nasdaq firms while we find an increase in the adverse selection component of the bid ask spread on the day of and the day prior to quarterly earnings announcements for firms with less predictable earnings we find no evidence of such changes for firms with more predictable earnings during a non announcement period we find that firms with relatively less predictable earnings have consistently higher total bid ask spreads than firms with more predictable earnings this finding suggests that firms with relatively less predictable earnings have a higher cost of equity capital than comparable firms with more predictable earning streams ceteris paribus hence earnings predictability may be a legitimate concern of managers who wish to minimize their cost of equity capital at least as it pertains to bid ask spreads

the association between accounting earnings and security returns for large and small firms abstract the differential information hypothesis advanced by atiase 1980 states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size this study examines two corollaries of that hypothesis first security prices of large firms anticipate accounting earnings earlier than security prices of small firms second for a given level of unexpected earnings the cumulative abnormal returns of small firms exceed those of large firms the results are generally consistent with atiase s hypothesis

reading the tea leaves model uncertainty robust forecasts and the autocorrelation of analysts forecast errors abstract we put forward a model in which analysts are uncertain about a firm s earnings process faced with the possibility of using a misspecified model analysts issue forecasts that are robust to model misspecification we estimate that this mechanism explains approximately 60 of the autocorrelation in analysts forecast errors the remainder stems from the cross sectional variation in mean forecast errors and in analysts estimation errors of the persistence of earnings growth shocks consistent with our model we find that analysts learn about some features of the earnings process but not others and this learning reduces but does not eliminate the autocorrelation of forecast errors as firms age other potential explanations for the autocorrelation of analyst forecast errors are rejected our model of robust forecasting applies not only to analysts forecasts but also to all model based forecasts

are multinational corporations safer the failure probabilities of a sample of multinational corporations mncs are derived and compared with those of a control group of domestic corporations dmcs the results suggest that the mean insolvency probability of dmcs is significantly higher than that of the mncs it is also observed that mncs are significantly more capitalized and the standard deviation of their equity as well as their average systematic risk are also significantly lower furthermore the average insolvency probability of the dmcs is more sensitive to changes in the values of the parameters than those of the mncs

structural changes and the forecasting of quarterly accounting earnings in the utility industry abstract this paper presents a statistical procedure to identify effects of three potential structural changes on accounting earnings temporary short run and long run the procedure is applied to quarterly accounting earnings of 39 utility companies structural changes are found to be commonplace statistical forecasting models that explicitly incorporate structural change effects are found to generate more accurate forecasts than other statistical models in the literature although no statistical model significantly dominates value line a firm specific model with structural change adjustment forecasts as well as value line moreover all statistical models examined have significant marginal forecasting power to complement value line forecasts

firm size and the information content of prices with respect to earnings abstract beaver lambert and morse 1980 suggest that prices may be useful in forecasting future earnings we explore the information content of prices with respect to earnings by focusing on firm size and its relation to the predictive accuracy of price based earnings forecasts firm size proxies for the amount of information and for the number of traders and professional analysts processing the available information about an enterprise our empirical results are consistent with the hypothesis that price based earnings will outperform univariate time series forecasts by a greater margin for larger firms than for smaller firms

product market pricing power industry concentration and analysts earnings forecasts this is the first study to establish a link between product market power and analysts earnings forecast accuracy and bias relating two different dimensions of market power to earnings forecastability we document that a a firm s relative pricing power and b its industry concentration are strong positive determinants of analysts earnings forecast accuracy we find that forecasting earnings of higher market power firms is less complex due to their ability to withstand cost shocks as well as greater informational efficiency enjoyed by such firms further forecast optimism increases with weakening product market pricing power and with lower industry concentration the knowledge derived from this study will hopefully improve the accuracy of equity valuation and thereby engender better buy side stock selections and sell side recommendations by analysts our analysis also suggests that brokerage firms compensating analysts based on forecast accuracy need to adjust for the differential in the information complexity of different industries

who is afraid of reg fd the behavior and performance of sell side analysts following the sec s fair disclosure rules we examine regulation fd s impact on the accuracy and dispersion of sell side analysts earnings forecasts using a large sample of quarterly forecasts made over a nearly 10 year period surrounding fd s adoption we uncover two main sets of findings first individual and consensus forecasts become less accurate post fd particularly for early forecasts and for smaller companies second forecast dispersion increases post fd this effect is stronger for early forecasts and has increased with the passage of time these results which are quite robust to alternative empirical methodologies suggest that there has been a reduction in both selective guidance and forecast quality post fd

institutional ownership differential predisclosure precision and trading volume at announcement dates abstract this study examines the relation between ownership structure as revealed by the percentage of outstanding shares held by institutional investors and trading volume at earnings announcement dates we find that volume response as a function of institutional ownership is quadratic with the quadratic curve that reaches a maximum at around 50 institutional ownership when risk tolerances are identical across investor types such a relation is consistent with kim and verrecchia s 1991a proposition that trading volume response to public announcements increases with the level of cross investor variation in precision of private predisclosure information

trading volume reactions to annual accounting earnings announcements the incremental role of predisclosure information asymmetry abstract this study provides empirical evidence regarding the effect of annual accounting earnings announcements on investors trading behavior we find that the magnitude of trading volume reaction is an increasing function of both the magnitude of the associated price reaction and the level of predisclosure information asymmetry these results are consistent with kim and verrecchia s 1991a theoretical trading volume proposition

managers earnings forecasts and intra industry information transfers abstract the effect that voluntarily disclosed managers earnings forecasts have on the security prices of the announcing firms and other firms in the same industry is examined the results are consistent with information content in managers forecasts and with information transfer between forecast firms and other firms in the industry these inferences are drawn from firms abnormal returns computed from single and two index pricing models where the latter includes market and industry indexes interestingly while a positive information transfer is evident with market model residuals once industry cross sectional covariation in firms returns is removed no directional relation is apparent

the timing of and incentives for annual earnings forecasts near interim earnings announcements abstract security analysts anticipate and respond to interim earnings announcements when they revise their annual earnings forecasts analysts avoid revising for two weeks before an interim announcement and more frequently revise immediately after an announcement as expected revision activity after an interim announcement is greater if absolute unexpected interim earnings are larger if there are more competing analysts and if unexpected interim earnings are negative unexpectedly analysts are reluctant to revise their forecasts early in the fiscal year these findings carry implications for research designs that use analyst forecasts

information value and investor wealth the case of earnings announcements this paper empirically investigates the relation between investor wealth and the value of annual and quarterly earnings announcements as implied by 1 the behavior of mean stock trade transaction sizes at announcement dates and 2 transaction size stratified trading activity in postannouncement time periods announcement period mean transaction sizes are found to exceed expected mean transactions sizes estimated from trading activity occurring in nonannouncement periods this result is attributed to a greater relative trading response to earnings announcements by wealthier investors consistent with ohlson s 1975 proposition that information value increases with investor wealth in a security market setting further evidence of a positive relation between value and wealth is found when postearnings announcement stock transactions are stratified by share size into three strata where the first stratum small stratum is transactions of 100 and 200 shares the second stratum large stratum is transactions of 300 to 900 shares and the third stratum institutional

fuel mix diversification incentives in liberalized electricity markets a mean variance portfolio theory approach monte carlo simulations of gas coal and nuclear plant investment returns are used as inputs of a mean variance portfolio optimization to identify optimal base load generation portfolios for large electricity generators in liberalized electricity markets we study the impact of fuel electricity and co2 price risks and their degree of correlation on optimal plant portfolios high degrees of correlation between gas and electricity prices as observed in most european markets reduce gas plant risks and make portfolios dominated by gas plant more attractive long term power purchase contracts and or a lower cost of capital can rebalance optimal portfolios towards more diversified portfolios with larger shares of nuclear and coal plants

price and trading volume reaction surrounding earnings announcements a closer examination the process of information dissemination and interpretation in securities markets is very complex and mostly unobservable while changes in prices and the amount of trading that takes place at the market level provide evidence of information processing verrecchia 1981 demonstrated that these are not sufficient to describe completely the dissemination of information and its interpretation by investors a descriptive study of price changes and trading volume however may still provide some insights into how investors react to information this paper is an empirical investigation of price changes and trading volume during the days surrounding the announcement of quarterly and annual earnings in the wall street journal wsj in the original paper investigating trading volume and price changes surrounding earnings announcements beaver 1968 was primarily concerned with whether the annual earnings announcement had information content i e led to changes in investors assessments of the probability distribution of future returns if there were any significant price changes and or trading volume during the week of the announcement then the annual earnings announcement was assumed to have had

do capital gain tax rate increases affect individual investors trading decisions abstract this paper examines individual investors short and long term trading reactions to the 1986 tax reform act s tra 86 capital gain tax rate increase consistent with a tax induced trading model we document a december 1986 change in year end trading patterns tra 86 also had long term effects on individual investors trading decisions the results suggest that individual investors were less more willing to sell accrued gain loss stocks after tra 86 our ability to document predicted trading behavior is in part due to our trading metric which captures individual investors selling activity better than the volume based metrics used in prior research

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

transactions volume and volatility we show that the positive volatility volume relation documented by numerous researchers actually reflects the positive relation between volatility and the number of transactions thus it is the occurrence of transactions per se and not their size that generates volatility trade size has no information beyond that contained in the frequency of transactions our results suggest that theoretical research needs to entertain scenarios in which 1 both the frequency and size of trades are endogenously determined yet 2 the size of trades has no information content beyond that contained in the number of transactions article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

has the information content of quarterly earnings announcements declined in the past three decades this paper examines changes in the information content of earnings over the past three decades using the two metrics from beaver 1968 abnormal trading volume and abnormal return volatility we find no evidence of a decline in the information content of earnings announcements over the past three decades as measured by both abnormal trading volume and return volatility around quarterly earnings announcements if anything our results suggest an increase over time in the informativeness of quarterly earnings announcements variables reflecting changes in firm specific factors account for a portion of the observed increase

earnings expectations investor trade size and anomalous returns around earnings announcements abstract we provide evidence that identifiable subsets of investors use significantly different information sets investors initiating large trades respond to analysts earnings forecast errors while investors initiating small trades respond to a less sophisticated signal that underestimates the implications of current earnings innovations for future earnings levels this suggests small investors exhibit the behavior that bernard and thomas journal of accounting and economics 13 305 340 theorize causes post earnings announcement drift we also use analysts forecasts to significantly improve the predictability of returns around earnings announcements previously documented by bernard and thomas finally results attempting to link return predictability to the prevalence of small investor trading are mixed

the intraday speed of stock price adjustment to major dividend changes bid ask bounce and order flow imbalances abstract this paper examines the intraday stock price reaction to substantial shifts in dividend policy the results indicate the price reaction to be slower than that previously found by patell and wolfson 1984 and closer to that found with earnings announcements by woodruff and senchack 1988 possible order flow imbalances are examined by looking at the proximity of transaction prices to contemporaneous bid and ask quotes while order flow imbalances are evident for bad news announcements this is not the case for the dividend increase sample this is interpreted as evidence that the price reaction to major dividend increases are in general anticipated fifteen minute holding period returns are computed to measure the movement of equilibrium prices during the announcement period results show a rapid adjustment of prices to positive announcements with adjustment to negative announcements taking up to 75 minutes finally fifteen minute lagged bid ask returns are calculated to determine whether an investor could respond to the announcement and earn positive returns these results are found to be dependent on the transaction cost assumptions being made

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

the role of consensus and disagreement in portfolio adjustment a trading volume approach abstract this paper shows that the diffusion of opinions slows down the portfolio adjustment a variance component model of trading volumes is used to analyze nyse and s p 100 index option trading volumes

intraindustry information transfers associated with management forecasts of earnings this study documents information transfers associated with the sign and magnitude of the changes in earnings expectations conveyed by management forecasts that is the management forecast of one firm discloser generates unexpected price reactions for firms nondisclosers similar to the forecaster the results are consistent with information transfers documented for releases of actual earnings foster 1981 and sales announcements olsen and dietrich 1985 1 these results build on prior management forecast research that has documented a link between the sign and magnitude of the changes in earnings expectations conveyed by management forecasts and the unexpected share returns price reactions of forecasting firms ajinkya and

a model of competitive stock trading volume a model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives i examine the link between the nature of heterogeneity among investors and the behavior of trading volume and its relation to price dynamics it is found that volume is positively correlated with absolute changes in prices and dividends i show that informational trading and noninformational trading lead to different dynamic relations between trading volume and stock returns

using shrinkage estimators to improve upon time series model proxies for the security market s expectation of earnings time series models box and jenkins 1976 and nelson 1973 of earnings expectations have frequently been used in capital market research to produce proxies for the security market s assessment of earnings surprise surrounding corporate earnings announcements see e g ball and brown 1968 beaver clarke and wright 1979 and foster olsen and shevlin 1984 these time series models are used to proxy for the market s assessment of unexpected earnings in situations wherever current analysts forecasts are not available e g small firms and quarterly earnings in a recent survey paper bathke and lorek 1984 suggest that three parsimonious time series models have been shown to be useful forecasting models of quarterly earnings per share viz those of 1 foster 1977 2 griffin 1977 and watts 1975 and 3 brown and rozeff 1979 using different samples of firms drawn from different time periods three classes of seasonal autoregressive integrated moving average sarima models have been identified as being the best univariate time series

do security analysts improve their performance with experience we investigate if sell side security analysts generate more accurate quarterly earnings forecasts and more profitable stock recommendations as their experience following a specific firm increases we measure firmspecific experience as the number of prior quarters for which the analyst has issued an earnings forecast for the firm if analysts improve their forecasting performance with repetition as suggested by the learning by doing lbd model an analyst s earnings forecasts will become more accurate with experience prior empirical work provides mixed evidence on whether analysts exhibit individual forecasting performance differences e g butler and

the firm information environment and capital structure international evidence abstractthis article investigates the effect of the firm information environment characterized by the analyst characteristics on firms capital structure choices and whether this effect varies according to country level institutional environments using a comprehensive international data set that covers 19 939 firms across 41 countries between 2000 and 2010 we document two key findings first firms with lower analyst coverage higher forecast dispersion and higher forecast errors have higher leverage second the effect of the firm information environment on corporate leverage is attenuated in countries with stronger governance mechanism and better information transparency this result suggests that a firm s information environment is an important factor influencing its capital structure decision and that country level institutional environments matter to this effect

complete markets informed trading and equity option introductions this paper proposes and tests a new hypothesis concerning the price impact of option introductions on the underlying asset we argue that the leverage properties of options induce a higher level of informed trading in the aggregate market underlying plus derivative resulting in excess listing day price movements in the newly optioned equity using an alternative dataset our results suggest that this may be an explanation for the observed positive than negative excess listing day returns of us optioned stocks over the past thirty years

informational efficiency and the information content of earnings during the market crash of october 1987 abstract this paper examines the joint hypothesis that stock markets were efficient with respect to announcements of quarterly earnings and that these earnings numbers were important in the determination of equilibrium security prices in four subperiods before during and after the crash of october 1987 results for the complete sample and the nyse subsample strongly support the joint hypothesis in each subperiod except for the worst of the crash october 19 20 1987 in contrast nasdaq firms reacted in the predicted direction during most subperiods including the crash but not all associations were significant

differential information and dynamic behavior of stock trading volume this article develops a multiperiod rational expectations model of stock trading in which investors have differential information concerning the underlying value of the stock investors trade competitively in the stock market based on their private information and the information revealed by the market clearing prices as well as other public news we examine how trading volume is related to the information flow in the market and how investors trading reveals their private information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the information content of earnings revenues and expenses in this paper we model risk adjusted returns at earnings announcements as a function of unexpected revenues and unexpected expenses in order to test for the information content of the components of earnings as well as for their incremental information content over earnings we use value line vl forecasts of earnings and revenues as a proxy for the market s expectation of these numbers and as a basis for the market s expectation of expenses we find both revenues and expenses have information content that is incremental to earnings we also model riskadjusted returns as a function of earnings and revenues to compare our findings with previous research that used a martingale model to derive expected revenues consistent with previous research we find no incremental information content in revenues in this formulation however we find information content in both earnings and revenues when expectations are taken from vl forecasts wilson 1986 found that investors used the earnings and revenues released at the preliminary announcement date to forecast the accruals and funds subsequently disclosed in the annual report or 10 k however he found no evidence of information content for revenues at this date wilson used prior periods revenues cash from operations current and noncurrent accruals and capital expenditures to predict revenues using

analysis and comparison of earnings forecast agents recent policy making activities of the sec 1978 1979 and the aicpa 1980 have rekindled interest in the subject of management s public disclosures of forecasts much of the forecasting literature and related policy considerations concern the comparative accuracy of managerial forecasts relative to other sources of earnings forecasts the basic premise is that if management forecasts are more accurate than those of other sources then it may be socially desirable to have the fasb or the sec govern forecast disclosures the economic implications of this policy issue were first discussed by gonedes dopuch and penman 1976 much of the subsequent empirical work has centered on assessments of the accuracy of managements forecasts in an effort to determine if they are potentially more informative a review of published research suggests that a number of conflicting results have been obtained one study reports that firm specific box and jenkins 1970 forecasts are superior to more accurate than those of management lorek mcdonald and patz 1976 while another concludes that analysts forecasts are superior to firm specific box jenkins forecasts and several other naive forecasting models brown and rozeff 1978 if one ignores differences in the samples and the time periods of these studies the results imply that analysts forecasts are more accurate

prediction performance of earnings forecasts the case of u s multinationals prior accounting research has provided evidence of the information content of a company s actual or predicted accounting earnings prior studies have also found that factors such as firm size industry or systematic risk influence the accuracy of the earnings predictions this study investigates the accuracy and the consensus among forecasters of earnings estimates for u s domestic and u s multinational corporations companies were classified into a domestic or multinational type for this research following the criteria established by statement of financial accounting standards no 14 for required disclosure of foreign operations the empirical results indicate that the accuracy of earnings forecasts is significantly lower for purely domestic firms than for u s based multinationals likewise the level of consensus in earnings estimates submitted by financial analysts is significantly lower for u s domestic than for u s multinational firms

financial analysts forecasts of earnings a better surrogate for market expectations abstract the specification of the market expectation of accounting numbers is a common feature of many empirical studies in accounting and finance givoly and lakonishok 1979 found that financial analysts forecasts have information content this study evaluates the quality of analysts forecasts as surrogates for the market expectation of earnings and compares it with that of prediction models commonly used in research results indicate that prediction errors of analysts are more closely associated with security price movements suggesting that analysts forecasts provide a better surrogate for market expectations than forecasts generated by time series models the study also identifies factors that might contribute to the performance of the financial analysts forecasts the broadness of the information set employed by analysts and to a lesser extent their reliance on information released after the end of the fiscal year appear to be important contributors to their performance

intra industry information transfers associated with earnings releases abstract the impact that a firm s earnings releases have on the stock prices of other firms in its industry is examined for an identifiable sub set of firms the results are consistent with a significant information transfer occurring between the earnings release firm and the other firms in its industry this subset is identified by examining the impact of the release on the stock price of the announcing firm the magnitude of this impact is more significant for a sample of firms which have a larger percentage of their revenues in the same line of business as the earnings release firm vis a vis a sample with a lower percentage of their revenues from the same line of business alternative interpretations of the empirical results are also discussed the research findings have implications for information content and market efficiency research and for research on policy issues associated with disclosure regulation

retracted relationship incentives and the optimistic pessimistic pattern in analysts forecasts we examine whether analysts incentives to maintain good relationships with management contribute to the optimistic pessimistic within period time trend in analysts forecasts in our experiments 81 experienced sell side analysts from two brokerage firms predict earnings based on historical information and management guidance analysts forecasts exhibit an optimistic pessimistic pattern across the two timing conditions early and late in the quarter and the effect is significantly stronger when the analysts have a good relationship with management than when their only incentive is to be accurate debriefing results indicate that analysts are aware of this pattern of forecasts and believe that this benefits their future relationships with management and with brokerage clients the analysts most frequently cite favored conference call participation and information access when describing benefits from maintaining good relationships with management our results suggest the following the optimistic pessimistic pattern in forecasts is in part a conscious response to relationship incentives information access is perceived to be a major benefit of management relationships and recent regulatory changes may have lessened but have not eliminated this conflict of interest source

additional evidence on the information content of management earnings forecasts prior studies have documented that management earnings forecasts which exceed expected earnings good news forecasts are associated with significant positive abnormal stock returns on average when publicly released however no significant negative abnormal returns are observed immediately surrounding the release of management forecasts which are defined as bad news these findings conflict with the results to date on price reactions associated with earnings announcements for example ball and brown 1968 found that good news bad news annual earnings announcements are associated with positive negative abnormal returns in the months preceding and including the annual earnings announcement foster 1977 reported similar findings for quarterly earnings announcements beaver clarke and wright 1979 found a positive ordinal association between the magnitude of unexpected earnings the difference between actual earnings and expected earnings

firm characteristics and analyst following abstract this paper examines the major determinants of the number of analysts following a firm a simple model of analyst following is proposed and several firm characteristics are suggested that are likely to influence the extent of a firm s analyst following by either affecting the aggregate demand for or supply of analyst services or both for the firm almost all of these characteristics are found to be strongly significant in affecting the extent of analyst following of firms and the empirical results generally accord well with economic intuition

book rate of return and prediction of earnings changes an empirical investigation over the years there has developed a fairly substantial body of research on the time series of earnings as a whole this literature concludes that changes in annual accounting earnings are unpredictable that is earnings follow a random walk 1 based on this result some inferences of economic substance policy have been claimed 2 in this paper we reconsider empirical issues which at least to some extent have been obscured by this conclusion we argue that the above result is only true in a limited sense since a modest enlargement of the predictive information set should allow for a rejection of the hypothesis that earnings changes are

differential intra industry information transfer associated with management earnings forecasts abstract this study proposes that the amount of information about one firm conveyed by management forecasts of another firm in the same industry depends on the earnings covariance between the two firms and the forecast firm s earnings variance the covariance reflects the competitive relation between the firms and the variance represents noise contained in forecasts when both variance and covariance are included in regressions nonforecast firms abnormal returns are associated with forecast firms abnormal returns when they are excluded no such association is observed the results are similar but much weaker when the independent variable is unexpected management forecasts

stock price reactions to the wall street journal s securities recommendations this paper examines the impact of the heard on the street hots column of the wall street journal on common stock prices the results of the study indicate that the hots column appears to have an impact on stock prices on the publication day however we also find a smaller but statistically significant impact on two days preceding the pub lication the significant abnormal returns on these days are associated with higher trading volume the reaction of stock prices is symmetric with respect to the buy and sell recom mendations and the impact of single company recommendations is greater than the im pact of the multi company recommendations i introduction the efficient market hypothesis assumes that security prices fully and instantaneously reflect all available information considerable evidence has been accumulated during the past decades in support of the hypothesis the acceptance of the hypothesis has raised questions about the economic value of professional investment advice if the market is efficient then the management of port folios based on these recommendations should not consistently outperform the market why then are investors still willing to pay for this information examples of the advice include low cost financial publications brokerage house rec ommendations and subscription financial newsletters that sell for hundreds of dollars recent studies argue that investment advisors can provide information to investors at a lower cost than the investors cost of information production millon and thakor 1985 develop a model that explains the existence of investment advisory agencies they argue that if the information of investment advisory agencies permits security analysts to share information about common uncertainties that affect the value of firms as a whole such as the return on the market portfolio then investment advisory agencies can produce information more cheaply than individual investors this model is consistent with the study of

testing a causal model of corporate risk taking and performance the determinants of organizational risk taking and its impact on economic performance are critical issues in strategic management using a model that included risk performance performance expecta