Do Lottery Characteristics Matter for Analysts’ Forecast Behavior?

Abstract

This study examines the effect of lottery characteristics on analysts’ earnings forecasts. We find that analysts are more optimistic for lottery firms. The optimism of earnings forecast decreases with analysts’ general and firm-specific experience. Information uncertainty would enhance the effect of lottery characteristics on analysts’ earnings forecast bias. Market states and investor sentiment positively affect the effect of lottery characteristics on analyst optimism. Moreover, the level of optimism on lottery stocks increases during economic expansion. Our findings suggest that behavioral biases, rather than rational incentives, explain the optimism of analysts’ earnings forecasts for lottery stocks.

Keywords: lottery stocks; analyst; earnings forecast optimism; behavioral bias