Abstract

http://ssrn.com/abstract=556704
 
 

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Corporate Disclosure, Analyst Forecast Dispersion, and Stock Returns


Ashiq Ali


University of Texas at Dallas - Naveen Jindal School of Management

Mark H. Liu


University of Kentucky - Gatton College of Business and Economics

Danielle Xu


Gonzaga University

Tong Yao


University of Iowa - Henry B. Tippie College of Business

August 1, 2012


Abstract:     
This paper examines whether a corporate disclosure practice is a reason for the forecast dispersion anomaly -- the negative relation between analyst forecast dispersion and future stock returns. Prior studies have shown that firms tend to disclose good news in a timely manner and delay the disclosure of bad news, and that withholding of news leads to greater dispersion in analysts’ forecasts. Accordingly, we predict that firms with higher dispersion in analysts’ earnings forecasts are more likely to experience poor earnings in subsequent quarters, and find evidence consistent with this prediction. After controlling for the relation between forecast dispersion and future earnings, we find that forecast dispersion is no longer negatively related to future stock returns. These results suggest that firms’ tendency to withhold bad news increases forecast dispersion as well as causes the market to temporarily overvalue stocks until the bad news is publicly released.

Number of Pages in PDF File: 44

Keywords: Corporate disclosure, analyst forecast dispersion, mispricing

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Date posted: June 18, 2004 ; Last revised: June 26, 2013

Suggested Citation

Ali, Ashiq and Liu, Mark H. and Xu, Danielle and Yao, Tong, Corporate Disclosure, Analyst Forecast Dispersion, and Stock Returns (August 1, 2012). Available at SSRN: http://ssrn.com/abstract=556704 or http://dx.doi.org/10.2139/ssrn.556704

Contact Information

Ashiq Ali
University of Texas at Dallas - Naveen Jindal School of Management ( email )
800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)
HOME PAGE: http://www.utdallas.edu/~axa042200/
Mark H. Liu
University of Kentucky - Gatton College of Business and Economics ( email )
Lexington, KY 40506
United States
859-257-9842 (Phone)
859-257-9688 (Fax)
Danielle Xu
Gonzaga University ( email )
Spokane, WA 99258
United States
Tong Yao (Contact Author)
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
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