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Heuristics of Representativeness, Anchoring and Adjustment, and Leniency: Impact on Earnings' Forecasts By Australian AnalystsAlastair MarsdenUniversity of Auckland - Faculty of Business & Economics Madhu VeeraraghavanMonash University – Department of Accounting and Finance and Corporate Finance Cluster; Financial Research Network (FIRN) Min YeUniversity of Auckland June 2007 Abstract: This paper investigates analysts' earnings forecasts for equities listed on the Australian Stock Exchange. Recent research shows that heuristics may influence analysts' decision making (see, Amir and Ganzach 1998), however, most of the evidence is limited to US and European markets. We provide further international evidence by examining the power of representativeness, anchoring and adjustment, and leniency heuristics on analysts' forecast errors using Australian data. Our findings show that analysts in Australia make forecasts optimistically - supporting the leniency hypothesis. We also find that analysts tend to overreact when forecast revisions and changes are positive and underreact when forecast revisions and changes are negative.
Number of Pages in PDF File: 38 Keywords: analyst forecasts, earnings revisions, forecast revisions, forecast changes JEL Classification: G14, G29 working papers seriesDate posted: June 27, 2007Suggested CitationContact Information
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