The Influence of Observed Stock Price Changes on Analysts' Earnings Forecast Revisions: Experimental Evidence
Jeffrey S. Miller
University of Notre Dame - Department of Accountancy
Lisa M. Sedor
January 6, 2006
Prior research demonstrates that the sign and magnitude of analysts' earnings forecast revisions are positively associated with the sign and magnitude of prior security returns. In an experiment, we examine whether observed stock price changes influence analysts' earnings forecast revisions in the context of varying levels of uncertainty about future earnings. We find that analysts' earnings forecast revisions are influenced by observed stock price changes when uncertainty about future earnings is high, but not when uncertainty about future earnings is low. Additional analyses provide evidence that the effect of uncertainty about future earnings on analysts' earnings forecast revisions is mediated by analysts' confidence in their forecasts. Results suggest that part of the association between analysts' earnings forecast revisions and prior security returns is likely due to analysts observing stock price changes and incorporating price information, either intentionally or unintentionally, into their forecasts.
Number of Pages in PDF File: 40
Keywords: analysts' earnings forecasts, confidence, forecast revisions, stock prices
JEL Classification: G29, M41, G12working papers series
Date posted: January 24, 2006
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