Information Uncertainty and Analyst Forecast Behavior
Frank Zhang
Yale School of Management
Contemporary Accounting Research, Vol. 23, No. 2, Summer 2006
Abstract:
Prior literature observes that information uncertainty exacerbates investor underreaction behavior. In this paper, I investigate whether, as professional investment intermediaries, sell-side analysts suffer more behavioral biases in cases of greater information uncertainty. I show that greater information uncertainty predicts more positive (negative) forecast errors and subsequent forecast revisions following good (bad) news, which corroborates previous findings on the post-analyst-revision drift. The opposite effects of information uncertainty on forecast errors and subsequent forecast revisions following good vs. bad news support the analyst underreaction hypothesis and are inconsistent with analyst forecast rationality or optimism suggested in prior literature.
Keywords: analyst forecasts error, forecast revision, information uncertainty, underreaction
JEL Classification: G14, G29, M41
Accepted Paper Series
Suggested Citation
Zhang, Frank, Information Uncertainty and Analyst Forecast Behavior. Contemporary Accounting Research, Vol. 23, No. 2, Summer 2006. Available at SSRN: http://ssrn.com/abstract=878374
