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Paper Stats:
Abstract Views: 1730
Downloads: 398
Download Rank: 10792
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Investor Sophistication and Market Earnings Expectations
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BEVERLY R. WALTHER
Northwestern University - Department of Accounting Information & Management
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Abstract:
This paper investigates whether sophisticated investors rely more on analyst forecasts than on time-series model forecasts in forming expected earnings. Specifically, I investigate if earnings-announcement-related returns are more closely associated with analyst (SRW) forecasts for firms for which the marginal investor is more (less) likely to be sophisticated. My proxies for investor sophistication are institutional ownership, analyst following, and firm size (Atiase [1985], Hand [1990]). I predict that market participants place more weight on the analyst forecast for firms with high institutional ownership, firms with high analyst following, and large firms.
For a sample of 89,246 firm-quarter observations over 1980-1995, I find that the weight placed on the analyst (SRW) forecast is increasing (decreasing) in institutional ownership, analyst following, and firm size. Forecast availability (as captured by publication in The Wall Street Journal) or forecast accuracy cannot account for these findings. Overall, my results suggest that market earnings expectations do not consistently resemble either analyst or SRW forecasts. Rather, the cross-sectional variation in the relative weights placed on these two forecasts is related to proxies for the sophistication of the marginal investor.
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JEL Classifications: M41, G12, G14
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Working Paper Series
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Suggested Citation
Walther, Beverly R., "Investor Sophistication and Market Earnings Expectations"
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Available at SSRN: http://ssrn.com/abstract=39101
or DOI: 10.2139/ssrn.39101
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Contact Information for
BEVERLY R.
WALTHER
(Contact Author)
Email address for BEVERLY R.
WALTHER
Northwestern University - Department of Accounting Information & Management
2001 Sheridan Road
Evanston
, IL
60208
United States
847-467-1595 (Phone)
847-467-1202 (Fax)
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May 31, 1997 |
95K
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