Stubborn Sell-Side Stock Analysts

Abstract:     
We study how out-of-consensus sell-side stock analysts update their earnings forecasts in response to new information. When an analyst's out-of-consensus forecast for a company's quarterly earnings turns out to be incorrect, we find that the analyst stubbornly persists in maintaining her out-of-consensus view. Relative to an analyst who was near consensus, the out-of-consensus analyst adjusts her forecasts for subsequent quarters less in the direction of the earnings surprise. On average, this stubbornness reduces forecasting accuracy. We discuss possible explanations for these findings and present evidence suggesting stubborn analysts are not rewarded for standing by extreme forecasts that eventually prove correct.

Keywords: stock analysts, forecasting, stubbornness, finance

JEL Classifications: D00, G20

Working Paper Series