Are Analysts’ Forecasts Informative to the General Public?
Management Science, Forthcoming
30 Pages Posted: 23 Mar 2009 Last revised: 5 Sep 2013
Date Written: December 2012
Contrary to the common view that analysts are important information agents, intraday returns evidence shows that announcements of analysts’ forecast revisions release little new information, on average. Further cross-sectional evidence from returns around the announcements confirms that revisions are virtually information-free. Daily announcement returns used in the literature appear to overstate the analyst’s role as information agent, because forecast announcements often are issued directly after reports of significant news about the followed firm. The evidence reveals a sequential relationship between events and news and forecast revisions indicative of analyst piggybacking, not prophecy. These new findings about the most sought-after analyst report broaden significantly the evidence indicating that price reactions to analysts’ reports reveal little new information.
Keywords: Analysts, Analysts' forecasts, Analysts' under/overreaction to information, Brokerage research, Capital markets, Contrarian strategies, Efficient markets, Financial markets, Information production, Market efficiency, Momentum effects, Post-earnings announcement drift, Sell-side analysts
JEL Classification: D82, G11, G12, G14, G24, G28, K22, M41
Suggested Citation: Suggested Citation