digital labor market intermediation and job expectations evidence from a field experiment subjective expectations are fundamental for understanding individual behavior yet little is known about how individuals use new information to formulate and update their subjective expectations in this study we exploit data from a multi treatment field experiment to investigate how job market information sent to jobseekers via short text messages sms influence subjective job gain expectations in peru results show that jobseekers who received digital intermediation based on a large information set increased their before after job gain expectations relative to the control group independently of the information channel no significant effects were found when labor market intermediation is based on a restricted short set of information

the effect of experience on security analyst underreaction abstract we examine if analysts more fully incorporate prior earnings and returns information in their current quarter forecasts as their experience following a firm increases we measure analyst firm specific forecasting experience as the number of prior quarters for which the analyst has issued an earnings forecast for the firm we find that analysts underreact to prior earnings information less as their experience increases suggesting one reason why analysts become more accurate with experience

supply chain information in analyst reports on publicly traded companies abstract analyst reports are an important source of secondary data on companies for understanding a company s performance in the recent past and for getting guidance on its future performance we therefore analyzed the text of 1028 equity analyst reports of 145 fortune 500 global companies not including services sectors like it or banking published between 2009 and 2011 for supply chain related information we found that nearly three fifths of these reports contained supply chain information pertaining to inbound process or outbound aspects of the supply chain of the company at the report level there are significant industry effects for supply chain related content in analyst reports on the other hand aggregating information at the company level it appears that analysts focus on a particular supply chain aspect for a company as well as its sector furthermore logistic regression analysis suggests a link between the supply chain information provided when this is positive in orientation and the buy sell hold recommendation of the analyst regarding the company s stock

analysts interim earnings forecasts evidence on the forecasting process existing empirical evidence indicates that analyst forecasts of corporate earnings do not meet the strict rationality standards prescribed by econometric tests of the rational expectations hypothesis 1 in this paper we address the question of whether the expectation formation process underlying analyst forecasts is adaptive or whether these forecasts are influenced by noninformational factors such as incentives arising from the market for their forecasts o brien 1988 lin and mcnichols 1993 francis and philbrick 1993 and dugar and nathan 1992 and interaction between judgmental and or statistical forecasting methods bunn and wright 1991 fan 1990 and hoerl and kennard 1970 the rejection of rational expectations gives rise to two views of the forecasting process of analysts the first based on an informational argument is that the forecasting process is adaptive marcet and sargent

a model of the liquidity structure based on asset indivisibility abstract although the notion of a liquidity structure of asset yields is widely accepted there do not seem to be models of such a structure here the liquidity of an asset is taken to be its transaction velocity the amount traded per unit time divided by the stock assets are assumed to be indivisible and to differ in size trade using such assets is implied by pairwise matching and absence of double coincidence in produced goods it is shown that a sufficiently large asset has a lower velocity and a higher yield than a sufficiently small asset

security analysis and trading patterns when some investors receive information before others in existing models of information acquisition all informed investors receive their information at the same time this article analyzes trading behavior and equilibrium information acquisition when some investors receive common private information before others the model implies that under some conditions investors will focus only on a subset of securities herding while neglecting other securities with identical exogenous characteristics in addition the model is consistent with empirical correlations that are suggestive of oft cited trading strategies such as profit taking short term position reversal and following the leader mimicking earlier trades in existing models of information acquisition all informed investors receive their information at the same time while these models provide many important insights in reality some investors either fortuitously or owing to superior skill acquire pertinent information before others by being first an investor can exploit this information to great advantage information that is uncovered only slightly later is less valuable even if it has not yet been publicly revealed we show in this article that the sequential nature of information arrival has a significant effect on both the trading decisions and the types of information collected by investors the model we develop describes the investment choices of a set of competitive risk averse investors who investigate the long term prospects of firms lucky or high ability investors uncover the

the effects of inflation news on high frequency stock returns previous research using daily returns finds conflicting evidence about the relationship between unanticipated inflation news and stock returns we explore the relationship by looking at the response in minutes and trades of size based stock portfolios to unexpected changes in the regularly scheduled producer price index and consumer price index announcements in particular we answer the following three questions 1 do stocks respond to inflation news 2 what is the speed and path of that response 3 is the response stable or does it vary with the economy the direction of the news or time

a positive model of earnings forecasts top down versus bottom up this article analyzes the behavior of two groups of corporate earnings forecasters analysts who follow individual company fortunes and market strategists who predict earnings for various company aggregates using data for two market indices the s p 500 and the dow jones industrial average we document that bottom up forecasts are systematically more optimistic than top down forecasts made by strategists this difference is not driven by the difference in the forecast target this finding may be explained by the incentives that analysts face and or by cognitive bias

earnings skewness and analyst forecast bias abstract we argue that if analysts objective is to provide the most accurate forecast by minimizing the mean absolute forecast error then the optimal forecast is the median instead of the mean earnings forecast bias is observed when the median is different from the mean in a skewed earnings distribution thus part of the observed analyst forecast bias could be a result of analysts efforts to improve forecast accuracy when the earnings distribution is skewed we find that earnings skewness is significantly related to analyst forecast bias we also provide evidence that the market adjusts for part of the skewness induced bias

does past success lead analysts to become overconfident this paper provides evidence that analysts who have predicted earnings more accurately than the median analyst in the previous four quarters tend to be simultaneously less accurate and further from the consensus forecast in their subsequent earnings prediction this phenomenon is economically and statistically meaningful the results are robust to different estimation techniques and different control variables our findings are consistent with an attribution bias that leads analysts who have experienced a short lived success to become overconfident in their ability to forecast future earnings

momentum investment strategies portfolio performance and herding a study of mutual fund behavior this study analyzes the extent to which mutual funds purchase stocks based on their past returns as well as their tendency to exhibit herding behavior i e buying and selling the same stocks at the same time the authors find that 77 percent of the mutual funds were momentum investors buying stocks that were past winners however most did not systematically sell past losers on average funds that invested on momentum realized significantly better performance than other funds the authors also find relatively weak evidence that funds tended to buy and sell the same stocks at the same time copyright 1995 by american economic association

analyst forecasting errors and their implications for security analysis a comparison of 66 100 consensus estimates of wall street analysts with reported earnings for a large sample of nyse amex and otc companies demonstrates that their forecasts differ significantly from actual reported earnings a minority of estimates fall within a range around reported earnings considered acceptable to many professional investors the error rates are not meaningfully affected by the business cycle or industry groupings the average error also appears to be increasing over time these findings question the use of finely calibrated earnings forecasts that are integral to the most common valuation models and indirectly question the valuation methods themselves

government transaction policy and gresham s law abstract a search theoretic model is used to study how legal restrictions may account for the fact that gresham s law sometimes holds but other times fails legal restrictions is modeled here as policies that government adopts in the transactions with private agents such as at what prices it accepts a currency in exchange for goods and at what ratios it conducts currency exchange a government policy sufficiently favorable to light coins can induce the existence of an equilibrium where both coins circulate and light coins are even accepted at a premium a policy favorable to heavy coins may increase their value to such an extent that they are hoarded from circulation when this equilibrium did not exist without interventions

a search based theory of the on the run phenomenon we propose a model in which assets with identical cash flows can trade at different prices infinitely lived agents can establish long positions in a search spot market or short positions by first borrowing an asset in a search repo market we show that short sellers can endogenously concentrate in one asset because of search externalities and the constraint that they must deliver the asset they borrowed that asset enjoys greater liquidity a higher lending fee specialness and trades at a premium consistent with no arbitrage we derive closed form solutions for small frictions and provide a calibration generating realistic on the run premia

barter and monetary exchange under private information the authors develop a model of production and exchange with uncertainty concerning the quality of commodities and study the role of fiat money in ameliorating frictions caused by private information the model is specified so that without private information only high quality commodities are produced and there is no welfare gain from using money with private information there can be equilibria and sometimes multiple equilibria where low quality commodities are produced and money can increase welfare money works by promoting useful production and exchange in efficient monetary equilibria agents adopt strategies that increase the probability of acquiring high quality output copyright 1994 by american economic association

terrorist attacks analyst sentiment and earnings forecasts we examine whether exogenous and extremely negative events such as terrorist attacks and mass shootings influence the sentiment and forecasts of sell side equity analysts we find that analysts w

on the coexistence of money and higher return assets and its social role this paper adopts mechanism design to investigate the coexistence of at money and higherreturn assets we consider an economy with pairwise meetings where at money and riskfree capital compete as means of payment as in lagos and rocheteau 2008 the trading mechanism in pairwise meetings is chosen among all individually rational renegotiation proof mechanisms to maximize society s welfare we show that in any stationary monetary equilibrium capital commands a higher rate of return than at money

search bargaining money and prices the goal of this paper is to extend existing search theoretic models of fiat money which until now have assumed that the price level is exogenous by explicitly incorporating bilateral bargaining this allows us to determine the price level endogenously and leads to additional insights concerning the role of money for example we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner s problem although the difference can become small as the discount rate or search friction vanishes we also find that there exist nonstationary inflationary equilibria

the forecast accuracy of individual analysts evidence of systematic optimism and pessimism o brien 1990 examines the annual earnings forecast accuracy of individual analysts reporting to the institutional brokers estimate system ibes of lynch jones and ryan during july 1975 september 1982 using a regression model which adjusts for average firm and year effects o brien finds no evidence of differential forecast accuracy comparing individual analysts earnings forecasts to median consensus forecasts during 1983 86 we also find no statistically significant evidence of differential analyst forecast accuracy our result however does not mean that one analyst s forecasts are much like another s we find that analysts are persistently optimistic or pessimistic relative to consensus forecasts we examine this persistent behavior and its effect on measures of forecast accuracy over a sample

coexistence of money and interest bearing securities abstract a random matching model with money is used to study the nominal yield on small denomination bearer safe discount securities issued by the government there is always one steady state with matured securities circulating at par and for some parameters another with them circulating at a discount in the former a necessary and sufficient condition for a positive nominal yield on not yet matured securities is exogenous discriminatory treatment of them by the government in the latter the post maturity discount on securities induces a deeper pre maturity discount even without such discriminatory treatment

monetary policy and asset prices a mechanism design approach we investigate the eects of monetary policy on asset prices in economies where assets are traded periodically in over the counter otc markets with bilateral meetings between buyers and sellers the trading mechanism in pairwise meetings is designed to maximize social welfare taking as given the frictions in the environment e g lack of commitment and limited enforcement and monetary policy we show that asset price bubbles emerge in a constrained e cient monetary equilibrium only if liquidity is abundant and the rst best allocation is implementable in contrast if liquidity is scarce assets are priced at their fundamental value in any constrained e cient monetary equilibrium in which case an increase in in ation has no eect on asset prices but it reduces output and welfare finally for low in ation rates the bursting of an asset price bubble can be an optimal response to a shock that reduces assets resalability

anticipated inflation and rates of return in a search theoretic monetary model abstract how does anticipated inflation of fiat money affect the real return of a near money an asset with real value used to mediate trades this essay studies a search model in which decentralized trade takes place under a fixed bargaining rule the essay analytically studies the comparative statics of a near money s real return as it varies with inflation the effects diverge markedly over the parameter space there exist parameters for which higher inflation lowers the real asset return as suggested by asset substitution theories there also exist parameters for which inflation has the opposite effect

loss function assumptions in rational expectations tests on financial analysts earnings forecasts abstract prior research concludes that financial analysts do not process public information efficiently in generating their earnings forecasts the ordinary least squares ols regression based tests used in prior studies assume implicitly that analysts face a quadratic loss function in contrast we argue that analysts likely face a linear loss function and hence try to minimize their absolute forecast errors we conduct and compare rational expectations tests using these two alternative loss functions we reproduce most prior findings of forecast inefficiency with ols regressions but find virtually no evidence of forecast inefficiency with least absolute deviation regressions where we explicitly assume a linear loss function

optimistic behavior when a decision bias is costly an experimental test the existence of optimism when biased decisions are costly is investigated experimentally subjects make an informed guess about an exogenously determined event the outside temperature a couple of days later payments in the control group depend only on how close the guess was to the realized temperature while payments in the treatment group also depend positively on realized temperature the data show the treatment group subjects to guess higher temperatures that is higher payments compared with the control group results thus indicate that there is optimism also when a decision bias is costly jel c91 d81 d84

rational markets yes or no the affirmative case with the recent flurry of articles declaiming the death of the rational market hypothesis it is well to pause and recall the very sound reasons this hypothesis was once so widely accepted at least in academic circles although academic models often assume that all investors are rational this assumption is clearly an expository device not to be taken seriously what is in contention is whether markets are rational in the sense that prices are set as if all investors are rational even if markets are not rational in this sense abnormal profit opportunities still may not exist in that case markets may be said to be minimally rational i maintain that not only are developed financial markets minimally rational they are with two qualifications rational i contend that realistically market rationality needs to be defined so as to allow investors to be uncertain about the characteristics of other investors in the market i also argue that investor irrationality to the extent that it affects prices is particularly likely to be manifest through overconfidence which in turn is likely to make the market hyper rational to illustrate the article reexamines some of the most serious historical evidence against market rationality

market demand for conservative analysts abstract sell side analysts on balance have incentives to emphasize good company news and downplay the bad resulting in inefficient forecasts we conjecture that this behavior generates a demand for forecasts from conservative analysts who unwind this pattern at least in part resulting in more efficient forecasts to investigate we introduce a measure of analyst conservatism and assess the market reaction to analysts forecast revisions conditioned on their past levels of conservatism we find a stronger market reaction to forecast revisions by more conservative analysts and that this result is heightened for companies with greater institutional investor following

in denial stock market underreaction to going concern audit report disclosures abstract we investigate the stock price reaction to uk going concern audit report disclosures in the calendar year subsequent to publication over this period our firm population underperforms by between 24 and 31 depending on the benchmark adopted this market underreaction to such an unambiguous bad news release is not a post earnings announcement drift phenomenon it is also robust to other potentially confounding explanations however whatever the reasons for such stock mispricing we find costly arbitrage prevents rational investors forcing prices back into line with fundamental value our results have implications for the market s ability to impound bad news appropriately and the incompleteness of arbitrage in such small loser firm situations

viewpoint a microfoundation of monetary economics in this lecture i explain what the microfoundations of money are about and why they are necessary for monetary economics then i review recent developments of a particular microfoundation of money commonly known as the search theory of money finally i outline some unresolved issues dans cette presentation l auteur explique ce que sont les microfondations de la monnaie et pourquoi elles sont necessaires a l economie monetaire ensuite il passe en revue certains developpements recents d une microfondation particuliere de la monnaie connue sous le nom de theorie de la recherche de la monnaie enfin l auteur fait le tour d un ensemble de problemes qui restent sans solution pour le moment

unifying underreaction anomalies this paper asks whether momentum and postevent drift are manifestations of the same underlying mechanism or are separate phenomena we find that both effects can be attributed to persistence in returns following news that affects expected earnings or earnings growth holding these quantities fixed there is no momentum effect nor is there postevent drift for our sample of events which includes seasoned equity offerings repurchases equity financed mergers and dividend initiations and omissions the implication is that return continuation follows fundamental news in general and in aggregate this explains momentum

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

liquidity and asset market dynamics this study analyzes economies with an essential role for liquid assets in the exchange process the model can generate multiple stationary equilibria across which asset prices market participation capitalization output and welfare are positively related it can also generate a variety of nonstationary equilibria even when fundamentals are deterministic and time invariant including periodic chaotic and stochastic sunspot equilibria with recurrent market crashes some equilibria have asset price trajectories that resemble bubbles growing and bursting endogenous private and public liquidity is also introduced sometimes it is efficient to provide enough liquid assets to satiate demand other times it is not

what good does doing good do the effect of bond rating analysts corporate bias on investor reactions to changes in social responsibility in this study we explore how investors reconcile information on firms social responsibility with analysts assessments of future firm risk in the pricing of long term bonds we ask whether investors pay attention to small strides toward and or small slips away from socially responsible behavior arguing that analysts corporate bias toward gains and against losses influences investor reactions to corporate social responsibility we hypothesize that analysts notice and reward improvements in social responsibility yet excuse lapses we find support for this hypothesis using a unique dataset of long term bonds that combines lagged measures of firm level financial and social performance with bond specific data pertaining to risk of default and pricing the empirically robust asymmetry in investor responses to small but often cumulative increases versus decreases in corporate social responsibility reveals an under examined root cause of longer term larger scale distortions in financial market returns regarding corporate social performance our findings elaborate earlier behavioral research on how corporate bias influences analysts short term assessments of economic risk by theorizing why this corporate bias may influence long term assessments of social risk our work also motivates more critical scrutiny of the role analysts play in revising the future risk of today s social action versus inaction

predictability in financial analyst forecast errors learning or irrationality in this paper we propose a rational learning based explanation for the predictability in financial analysts earnings forecast errors documented in prior literature in particular we argue that the serial correlation pattern in analysts quarterly earnings forecast errors is consistent with an environment in which analysts face parameter uncertainty and learn rationally about the parameters over time using simulations and real data we show that the predictability evidence is more consistent with rational learning than with irrationality fixation on a seasonal random walk model or some other dogmatic belief

within firm pay inequality financial regulators and investors have expressed concerns about high pay inequality within firms using a proprietary data set of public and private firms this paper shows that firms with higher pay inequality relative wage differentials between top and bottom level jobs are larger and have higher valuations and stronger operating performance moreover firms with higher pay inequality exhibit larger equity returns and greater earnings surprises suggesting that pay inequality is not fully priced by the market our results support the notion that differences in pay inequality across firms are a reflection of differences in managerial talent received march 14 2016 editorial decision january 21 2017 by editor itay goldstein

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

bias in european analysts earnings forecasts forecasting company earnings is a difficult and hazardous task in an efficient market where analysts learn from past mistakes there should be no persistent and systematic biases in consensus earnings accuracy previous research has already established how some single individual company characteristics systematically influence forecast accuracy so far however the effect on consensus earnings biases of a company s sector and country affiliation combined with a range of other fundamental characteristics has remained largely unexplored using data for 1993 2002 this article disentangles and quantifies for a broad universe of european stocks how the number of analysts following a stock the dispersion of their forecasts the volatility of earnings the sector and country classification of the covered company and its market capitalization influence the accuracy of the consensus earnings forecast

do expert informational intermediaries add value evidence from auditors in microcap initial public offerings do expert informational intermediaries add value we address this question by examining the informativeness of the audit report contained in the prospectus associated with a firm s initial public offering ipo at the time of the ipo there is a relative lack of information to facilitate the establishment of equity values suggesting that the information provided by outside experts e g auditors underwriters is particularly important in this article we study small non venture backed ipos a segment of the market with the poorest long run performance and where the prestigious audit firm is often the sole if any expert present we find that the pre ipo opinions of larger auditors are more predictive of post ipo negative stock delistings of particular note the opinions of the national tiered firms are comparably predictive to those of the big 6 though this finding emerges only after we consider the selectivity based differences in the clients that hire these national firms our findings also indicate that for larger auditors the presence of a pre ipo going concern opinion is more strongly associated with first year stock returns and that larger auditors are more likely to give such opinions to their distressed clients overall we address a deficiency in the literature relating to the paucity of evidence on the value of auditor opinions to investors healy and palepu 2001 p 415

mutual fund herding in response to hedge fund herding and the impacts on stock prices abstract we examine whether mutual funds and hedge funds herd after each other and the associated impacts on stock prices we find strong evidence that mutual funds herd into or out of stocks following the herd of hedge funds mutual funds herding measure is positively related to last quarter s hedge fund herding in contrast hedge funds do not follow mutual funds mutual funds following of hedge funds leads to a sharp price reversal in the next quarter whereas hedge fund herding itself does not destabilize prices further a mutual fund s following intensity increases with its past performance the top 30 of mutual funds most active in following hedge funds do so persistently and drastically increase their herding subsequent to intense herding by hedge funds they are also the group driving the above price reversals overall our evidence is consistent with the reputational incentives of mutual fund herding and the associated price destabilization effects

liquidity premia in dynamic bargaining markets abstract this paper develops a search theoretic model of the cross sectional distribution of asset returns abstracting from risk premia and focusing exclusively on liquidity in contrast with much of the transaction cost literature it is not assumed that different assets carry different exogenously specified trading costs instead different expected returns due to liquidity are explained by the cross sectional variation in tradeable shares the qualitative predictions of the model are consistent with much of the empirical evidence

the timing and value of forecast and recommendation revisions abstract this paper evaluates the information content of analysts one quarter ahead earnings forecast revisions and recommendation revisions at various points in event time relative to earnings announcement dates across three sets of tests we find that the revisions are least informative in the week after earnings announcements and that the information content of revisions generally increases over event time we find a sharp increase in the information content of upward forecast revisions and recommendation upgrades in the week before earnings announcements but we do not find a similar increase for downward revisions or for recommendation downgrades

fund manager herding a test of the accuracy of empirical results using u k data the portfolio holdings of 268 u k equity mutual funds are employed to test the accuracy of the lakonishok shleifer and vishny 1992 measure of herding and test for herding among u k mutual fund managers after adjusting for the biases in the lsv herding measure the results reveal the existence of a modest amount of fund manager herding in the largest and smallest individual u k stocks but little herding in other stocks or stocks aggregated by industry contrary to previous u s results we find that u k mutual fund managers tend to herd out of large stocks after high excess returns

a reexamination of analysts earnings forecasts for takeover targets abstract we examine analysts earnings forecasts for a sample of takeover targets and document that the announcement month forecasts are systematically revised upward supporting the hypothesis that a takeover announcement conveys favorable information about the target firm in addition we find that abnormal forecast revisions of future stand alone earnings are significantly greater for targets with low tobin s q ratios relative to targets with high q ratios lending further support to the information hypothesis finally we provide evidence that managerial resistance to the takeover does not destroy value our results are in direct contrast to pound 1988

asymmetric sensitivity of ceo cash compensation to stock returns abstract we document that ceo cash compensation is twice as sensitive to negative stock returns as it is to positive stock returns since stock returns include both unrealized gains and unrealized losses we expect cash compensation to be less sensitive to stock returns when returns contain unrealized gains positive returns than when returns contain unrealized losses negative returns this is consistent with boards of directors exercising discretion to reduce costly ex post settling up in cash compensation paid to ceos

do hedge funds deliver alpha a bayesian and bootstrap analysis abstract using a robust bootstrap procedure we find that top hedge fund performance cannot be explained by luck and hedge fund performance persists at annual horizons moreover we show that bayesian measures which help overcome the short sample problem inherent in hedge fund returns lead to superior performance predictability sorting on bayesian alphas relative to ols alphas yields a 5 5 per year increase in the alpha of the spread between the top and bottom hedge fund deciles our results are robust and relevant to investors as they are neither confined to small funds nor driven by incubation bias backfill bias or serial correlation

do sell side stock analysts exhibit escalation of commitment this paper presents evidence that when an analyst makes an out of consensus forecast of a company s quarterly earnings that turns out to be incorrect she escalates her commitment to maintaining an out of consensus view on the company relative to an analyst who was close to the consensus the out of consensus analyst adjusts her forecasts for the current fiscal year s earnings less in the direction of the quarterly earnings surprise on average this type of updating behavior reduces forecasting accuracy so it does not seem to reflect superior private information further empirical results suggest that analysts do not have financial incentives to stand by extreme stock calls in the face of contradictory evidence managerial and financial market implications are discussed

biased forecasts or biased earnings the role of reported earnings in explaining apparent bias and over underreaction in analysts earnings forecasts the extensive literature that investigates whether analysts earnings forecasts are biased and or inefficient has produced conflicting evidence and no definitive answers to either question this paper shows how two relatively small but statistically influential asymmetries in the tail and the middle of distributions of analysts forecast errors can exaggerate or obscure evidence consistent with analyst bias and inefficiency leading to inconsistent inferences we identify an empirical link between firms recognition of unexpected accruals and the presence of the two asymmetries in distributions of forecast errors that suggests that firm reporting choices play an important role in determining analysts forecast errors r 2003 elsevier b v all rights reserved

a model of a currency shortage abstract until the mid 19th century shortages of currency were common moreover a frequent policy response was a prohibition on the export of coins we use a random matching model with indivisible money to explain a shortage and to judge the desirability of a prohibition on the export of coins the model although extreme in many regards represents better than earlier models a demand for outside money and the problems that arise when that money is indivisible it can also rationalize a prohibition on the export of money

tick size bid ask spreads and market structure we propose a link between market structure and the resulting market characteristics tick size bid ask spreads quote clustering and market depth we analyze transactions data of stocks traded on the london stock exchange a dealer market we conclude that market charateristics are endogenous to the market structure the london dealer market does not have a mandated tick size and it exhibits higher spreads higher quote clusterings and higher market depth than the nyse auction market clustering of trade prices is similar in london and new york

career concerns of mutual fund managers we examine the labor market for mutual fund managers using data from 1992 1994 we find that termination is more performance sensitive for younger managers we identify possible implicit incentives created by the termination performance relationship the shape of the termination performance relationship may give younger managers an incentive to avoid unsystematic risk direct effects of portfolio composition may also give younger managers an incentive to herd into popular sectors consistent with these incentives we find that younger managers hold less unsystematic risk and have more conventional portfolios promotion incentives and market responses to managerial turnover are also studied

money and prices a model of search and bargaining abstract this paper makes commodities divisible and incorporates bargaining into the search theoretic model of money to determine the purchasing power of money or price it is shown that two monetary equilibria always coexist where fiat money is universally accepted the two equilibria differ in price output welfare and the velocity of money sunspot monetary equilibria exist in which money is universally accepted in all states of the economy multiplicity has novel implications on the effectiveness of currency substitution and exchange market intervention journal of economic literature classification numbers c78 e40

analyst forecast consistency we show empirically that analysts who display more consistent forecast errors have greater ability to affect prices and that this effect is larger than that of stated accuracy these results lead to three implications first consistent analysts are less likely to be demoted and are more likely to be nominated all star analysts second analysts strategically deliver downward biased forecasts to increase their consistency if at the expense of stated accuracy finally the benefits of consistency and of lowballing accuracy are increasing decreasing in institutional investors presence

percentage and relative error measures in forecast evaluation properties of two large families of scale free forecast accuracy measures that include popular measures such as mean absolute percentage error relative error and squared percentage error are examined in this paper we describe the optimal reports when forecasts are evaluated using these measures we also provide analytic expressions for the optimal bayes act associated with these measures under a general power transformation for several well known probability distributions we then show that using measures from these two families may inadvertently provide incentives for either pessimism or optimism among forecasters i e rewarding underforecasts or overforecasts relative to some reference measure of central tendency as an illustration of these concepts we examine the use of these measures for model selection in a forecast aggregation example using stock price forecasts derived from the thomson reuters institutional brokers estimate system this example illustrates how aggregation methods that alw

rationality and analysts forecast bias this paper proposes and tests a quadratic loos utility function for modeling corporate earnings forecasting where financial analysts trade off bias to improve management access and forecast accuracy optimal forecasts with minimum expected error are optimistically biased and exhibit predictable cross sectional variation related to analyst and company characteristics empirical evidence from individual analyst forecasts is consistent with the model s predictions these results suggest that positive and predictable bias may be a rational property of optimal earnings forecasts prior studies using classical notions of unbiasedness may have prematurely dismissed analysts forecasts as being irrational or inaccurate

individual analyst characteristics and forecast error the purpose of the study reported here was to investigate how characteristics of analysts affect their forecast errors previous research has found positive serial correlation in forecast errors which can be attributed to underreaction to new information especially to bad news the relationship between an analyst s behavior and that analyst s characteristics is not clear however because most previous work was based solely on consensus estimates by using detailed historical data i found a stronger serial correlation among the herd to consensus analysts that is the group with a small average distance between their forecasts and the consensus forecast than among other analysts moreover average distance to consensus itself has a positive serial correlation and it may be attributed to an analyst s personality optimistic or pessimistic i found strong positive serial correlation in the average distance to consensus among the herd to consensus analysts these results show that herd to consensus ana

which drives abnormal returns over or under reaction studies applying longitudinal analysis this article combined both cross sectional and time series longitudinal analysis to identify that factor anomalies are driven by either over reaction or under reaction the basic principle is first use a factor to form 10 portfolios in the t quarter then observe the average prices and returns of the 10 portfolios for the previous four quarters and for the following four quarters as well samples in this study contain all stocks listed in the us from 1990 to 2010 the empirical evidence shows that the reason for the abnormal returns of value book to price ratios earnings to price ratios sales to price ratios scale and liquidity factors is over reaction meanwhile the reason for the abnormal returns of growth factors return on equity return on assets and revenue growth rate is under reaction the results provide significant policy implications the anomaly returns of the value scale and liquidity factors last longer and are more appropriate to be employed for long run investment while the growt

chronic bias in earnings forecasts whatever the source or explanation of bias in forecasts of company earnings if such bias persists it is potentially discoverable and exploitable by investors this research addresses 1 whether characterizing forecasts as if they were a homogeneous group with respect to bias is accurate or useful and 2 whether a long term record of forecast errors contains information useful in predicting subsequent errors we found that earnings forecasts are heterogeneous with respect to direction and degree of bias we also found evidence of extremes in optimism and pessimism and that extreme errors tend to persist in the same direction which suggests certain potentially profitable trading strategies

firm geographic dispersion and financial analysts forecasts using a text based measure of geographic dispersion that captures the economic ties between a firm and its geographically distributed economic interests this study provides evidence that financial analysts issue less accurate more dispersed and more biased earnings forecasts for geographically dispersed firms we observe the degree to which a firm has an overlapping distribution of economic centers in comparison to industry competitors and suggest that geographically similar firms have lower information gathering costs and thereby more precise earnings forecasts empirical evidence supports this prediction we further find that the geographic dispersion across the u s is less likely to affect forecast precision when a firm has economic activities in states with highly correlated local shocks our findings suggest that the effect of geographic dispersion is more pronounced for soft information environments where information is more difficult to make impersonal by using technological advances consistent with the information asymmetry argument we find that geographically dispersed firms have less comparable and more discretionary managed earnings have less extensive than industry competitors segment information are more likely to restate sale segment information and issue annual and quarterly filings with a delay

conflicts of interest and analyst behavior evidence from recent changes in regulation regulation fd made analysts less dependent on insider information and diminished analysts motives to inflate their forecasts the global research analyst settlement had an even bigger impact on analyst behavior the mean forecast bias declined significantly whereas the median forecast bias essentially disappeared these results are similar for all analysts

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

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

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

inefficiency in analysts earnings forecasts systematic misreaction or systematic optimism a rational analysis of analyst behavior predicts that analysts immediately and without bias incorporate information into their forecasts several studies document analysts tendency to systematically underreact to information underreaction is inconsistent with rationality other studies indicate that analysts systematically overreact to new information or that they are systematically optimistic this study discriminates between these three hypotheses by examining the interaction between the nature of information and the type of reaction by analysts the evidence indicates that analysts underreact to negative information but overreact to positive information these results are consistent with systematic optimism in response to information the literature on financial analysts defines the phrase forecast inefficiency to mean forecasts that fail to accurately incorporate new information on a timely basis and or that are biased these forecasts have also been described as irrational or suboptimal prior studies report inefficiency in analysts forecasts finding that they are upwardly biased and inaccurately reflect available information some studies conclude from this that analysts underreact to information other studies conclude that analysts overreact if markets treat analysts forecasts as both rational and statistically optimal then inefficient forecasts could have important implications for the efficiency of pricing in securities markets in this paper we reexamine the apparent tendency of analysts to misinterpret earnings information the intent of this study is to discriminate between three hypotheses 1 that analysts systematically underreact to new earnings information 2 that analysts systematically overreact to new earnings information and 3 that analysts are systematically optimistic in their reactions for hypotheses 1 and 2 the direction of the misinterpretation i e underor overreaction is independent of the nature of the information received in contrast hypothesis 3 predicts that analysts are optimistic in interpreting

pairwise trade asset prices and monetary policy abstract we construct a search theoretic model where fiat money coexists with real assets and all assets can be used as a media of exchange the terms of trade in bilateral matches are determined by a pairwise pareto efficient pricing mechanism we do not have to appeal to exogenous liquidity constraints to generate asset prices that are consistent with the following facts i fiat money can be valued despite being dominated in its rate of return ii real assets with identical dividend flows can have different rates of return and iii an increase in inflation raises asset prices lowers their returns and widens the rate of return differences between assets on the normative side we show that there is a range of inflation rates that implement the first best allocation

bayesian herders updating of rainfall beliefs in response to external forecasts summary temporal climate risk weighs heavily on many of the world s poor model based climate forecasts could benefit such populations provided recipients use forecast information to update climate expectations we test whether pastoralists in southern ethiopia and northern kenya update their expectations in response to forecast information the minority of herders who received these climate forecasts updated their expectations for below normal rainfall but not for above normal rainfall this revealed preoccupation with downside risk highlights the potential value of better climate forecasts in averting drought related losses but realizing any welfare gains requires that recipients strategically react to these updated expectations

changes in institutional ownership and stock returns assessment and methodology although the relation between quarterly changes in institutional investor ownership and contemporaneous stock returns is well documented the source of the relation remains unclear because institutional ownership data are unavailable at higher frequencies in this study we develop a method to generate estimates of higher frequency covariances when one variable is observed at lower frequencies e g quarterly changes in institutional ownership and monthly stock returns our method provides evidence that institutional trading has both temporary and permanent price effects and that the latter is associated with information effects