Analysts’ Responsiveness and Market Underreaction to Earnings Announcements
نویسنده
چکیده
This study shows that analysts vary significantly in their responsiveness to earnings announcements, where responsiveness is defined as promptness of analysts’ first forecast revisions for the next quarter since the prior quarterly earnings announcements. Further evidence indicates that analysts’ responsiveness improves the efficiency of their expectations of future earnings immediately after the earnings announcements, which in turn mitigates the magnitude of the post-earnings-announcement drift. The results provide direct support for the “delayed response” hypothesis that prior research proposes to explain market underreactions.
منابع مشابه
Investors’ Misreaction to Unexpected Earnings: Evidence of Simultaneous Overreaction and Underreaction∗
Behavioral Finance aims to explain empirical anomalies by introducing investor psychology as a determinant of asset pricing. Two kinds of anomalies, namely underreaction and overreaction, have been established by an impressive record of empirical work. While underreaction defines a slow adjustment of prices to corporate events or announcements, overreaction deals with extreme stock price reacti...
متن کاملThe Rational Modeling Hypothesis to Explain Analyst Underreaction to Earnings News*
Analysts publish earnings forecasts with serially correlated errors. We assess rational versus cognitive limitation explanations for analysts’ underreaction to earnings news. Institutional investor voting for all-star analyst selections reveals whether these investors prefer analysts to issue forecasts with less serially correlated errors. Consistent with it being potentially rational for analy...
متن کاملDisagreement, Underreaction, and Stock Returns
We explore the analyst earnings forecasts data to study the interactive effect between disagreement and underreact to earnings news on asset prices. We find that (1) changes in the mean of forecasted earnings as an underreaction measure positively predict future returns, that (2) changes in the standard deviation of forecasted earnings as a disagreement measure negatively predict future returns...
متن کاملInefficiency in Earnings Forecasts: Experimental Evidence of Reactions to Positive vs. Negative Information
Prior archival studies of analysts’ forecasts have found evidence for systematic underreaction, systematic overreaction, and systematic optimism bias. Easterwood and Nutt (1999) attempt to reconcile the conflicting evidence by testing the robustness of Abarbanell and Bernard’s (1992) underreaction results to the nature of the information. Consistent with systematic optimism, forecasts are found...
متن کاملThe Post Forecast Revision Drift and Underreaction to Industry-Wide and/or Firm-Specific Earnings
We examine whether the post forecast revision drift is attributable to investors’ underreaction to industry-wide and/or firm-specific earnings news in analysts’ forecast revisions. We find a large drift associated with industry-wide earnings news but, on average, no drift associated with firm-specific earnings news. Consistent with the functional fixation hypothesis, we show empirically that th...
متن کامل