Abstract

http://ssrn.com/abstract=1571619
 
 

References (35)



 


 



'Consistent' Earnings Surprises


Byoung-Hyoun Hwang


Cornell University - Dyson School of Applied Economics and Management; Korea University - Department of Finance

Baixiao Liu


Florida State University

Dong Lou


London School of Economics & Political Science (LSE)

May 5, 2014


Abstract:     
We hypothesize that analysts with a bullish stock recommendation have an interest in not being subsequently contradicted by negative firm-specific news. As a result, these analysts report downward-biased earnings forecasts so that the company is less likely to experience a negative earnings surprise. Analogously, analysts with a bearish recommendation report upward biased earnings forecasts so that the firm is less likely to experience a strong positive earnings surprise. Consistent with this notion, we find that stock recommendations significantly and positively predict subsequent earnings surprises, as well as narrow beats versus narrow misses. This predictability is concentrated in situations where the motivation for such behavior is particularly strong. Stock recommendations also predict earnings-announcement-day returns. A long-short portfolio that exploits this predictability earns abnormal returns of 125 basis points per month.

Number of Pages in PDF File: 54

Keywords: Stock recommendations, Biased earnings forecasts, Career concerns

JEL Classification: G14, G18, G20

working papers series


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Date posted: March 15, 2010 ; Last revised: May 6, 2014

Suggested Citation

Hwang, Byoung-Hyoun and Liu, Baixiao and Lou, Dong, 'Consistent' Earnings Surprises (May 5, 2014). Available at SSRN: http://ssrn.com/abstract=1571619 or http://dx.doi.org/10.2139/ssrn.1571619

Contact Information

Byoung-Hyoun Hwang (Contact Author)
Cornell University - Dyson School of Applied Economics and Management ( email )
Ithaca, NY
United States
HOME PAGE: http://www.bhwang.com
Korea University - Department of Finance
Seoul, 136-701
Korea
Baixiao Liu
Florida State University ( email )
Tallahasse, FL 32306
United States

Dong Lou
London School of Economics & Political Science (LSE) ( email )
Department of Finance
Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)207 1075360 (Phone)
HOME PAGE: http://personal.lse.ac.uk/loud/
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