Long-Horizon Forecasts

Abstract

Why do some analysts reveal their long-horizon forecasts, while many other analysts do not? We argue that analysts reveal their long-horizon forecasts to generate publicity and we find evidence consistent with this hypothesis. Analysts that work for smaller, less prestigious brokerages, where a larger fraction of revenue comes from trading fees and publicity incentives are high, are more likely to reveal their long-horizon forecasts. We also show, using a relatively novel sample of crowd-sourced forecasts, that sell-side analysts are much more likely to issue long-horizon forecasts than buy-side analysts, which is consistent with sell-side analysts using long-horizon forecasts to attract clients. Additionally, variation in the expected rewards from publicity across portfolio firms and analysts also affects the decision of when to reveal long-horizon forecasts. Lastly, we show that revealing long-horizon forecasts affects analysts' careers. Consistent with analysts internalizing their employer's publicity incentives and using long-horizon forecasts to generate publicity, analysts that issue long-horizon forecasts and work for brokerages that value publicity experience lower job termination risk and larger investor responses to their future research, but also experience a lower probability of being promoted to a top brokerage.

Keywords: Analyst Forecasts; Analyst Career Outcomes; Forecast Accuracy; Forecast Horizon; Sell-Side Analysts

JEL Classification: G11, G14, G24, M41