Analyst disagreement, forecast bias and stock returns
By: Anna Scherbina
Contributors: Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 05-003; Working paper (Harvard Business School. Division of Research) -- 05-003
Publisher: Division of Research, Harvard Business School
Published: 2004
Place of publication: Boston
Language: eng
Number of pages: 32
Description: I present evidence of inefficient information processing in equity markets by documenting that biases in analysts' earnings forecasts are reflected in stock prices. In particular, I show that investors fail to fully account for optimistic bias associated with analyst disagreement. This bias arises for two reasons. First, analysts issue more optimistic forecasts when earnings are uncertain. Second, analysts with sufficiently low earnings expectations who choose to keep quiet introduce an optimistic bias in the mean reported forecast that is increasing in the underlying disagreement. Indicators of the missing negative opinions predict earnings surprises and stock returns. By selling stocks with high analyst disagreement institutions exert correcting pressure on prices.
Notes: "June 2004"--Added t.p.

Includes bibliographical references.