Abstract

http://ssrn.com/abstract=817108
 
 

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Prior Forecasting Accuracy and Investor Reaction to Management Earnings Forecasts


Amy P. Hutton


Boston College - Carroll School of Management

Phillip C. Stocken


Dartmouth College - Tuck School of Business

June 8, 2009


Abstract:     
We examine the properties of firms' forecasting records and whether the accuracy of their prior earnings forecasts affects investor response to their subsequent forecasts. Within the context of a Bayesian model of investor learning, we find that the stock price response to management forecast news is increasing in prior forecast accuracy and also in the length of a firm's forecasting record. Further, we document that investors are more responsive to extreme good and bad news forecasts when a firm has an established forecasting record. Overall, these results suggest that a firm’s prior forecasting behavior allows it to establish a forecasting reputation.

Number of Pages in PDF File: 46

Keywords: Management forecasts, reputation, voluntary disclosure

JEL Classification: G12, G18, G38, K22, G39, M41, M45

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Date posted: October 2, 2005 ; Last revised: July 8, 2009

Suggested Citation

Hutton, Amy P. and Stocken, Phillip C., Prior Forecasting Accuracy and Investor Reaction to Management Earnings Forecasts (June 8, 2009). Available at SSRN: http://ssrn.com/abstract=817108 or http://dx.doi.org/10.2139/ssrn.817108

Contact Information

Amy P. Hutton (Contact Author)
Boston College - Carroll School of Management ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617 552 1951 (Phone)
Phillip C. Stocken
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
603-646-2843 (Phone)
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