Is There Safety in Numbers? The Effects of Forecast Accuracy and Forecast Boldness on Financial Analysts' Credibility with Investors

41 Pages Posted: 17 Nov 2008

See all articles by Kathryn Kadous

Kathryn Kadous

Emory University - Goizueta Business School

Molly Mercer

DePaul University

Jane M. Thayer

University of Virginia

Multiple version iconThere are 2 versions of this paper

Date Written: July 25, 2008

Abstract

This paper reports the results of an experiment that examines how analyst forecast accuracy (i.e., how close an analyst's forecast is to realized earnings) and forecast boldness (i.e. how far the analyst's forecast is from the consensus forecast) affect the analyst's perceived credibility and investors' willingness to rely on and purchase the analyst's future reports. We hypothesize and find that forecast boldness magnifies the effect of forecast accuracy on these variables. That is, analysts who provide accurate, bold forecasts experience more positive consequences than those who provide accurate, non-bold forecasts, and analysts who provide inaccurate, bold forecasts experience more negative consequences than those who provide inaccurate, non-bold forecasts. We also find that these effects are not symmetric - the negative consequences of being bold and inaccurate exceed positive consequences of being bold and accurate. Our results are not sensitive to the level of the analyst's prior reputation.

Keywords: financial analysts, herding, forecast accuracy, attribution theory

JEL Classification: G24, G29, M41, N22

Suggested Citation

Kadous, Kathryn and Mercer, Molly and Thayer, Jane M., Is There Safety in Numbers? The Effects of Forecast Accuracy and Forecast Boldness on Financial Analysts' Credibility with Investors (July 25, 2008). Available at SSRN: https://ssrn.com/abstract=1301136 or http://dx.doi.org/10.2139/ssrn.1301136

Kathryn Kadous (Contact Author)

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States
404-727-4967 (Phone)

Molly Mercer

DePaul University ( email )

1 E Jackson Blvd Suite 6000
Chicago, IL 60604
United States
(312)362-8956 (Phone)

Jane M. Thayer

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States

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