Inefficiency in Analysts' Earnings Forecasts: Systematic Misreaction or Systematic Optimism?

Posted: 24 Apr 1999

See all articles by John C. Easterwood

John C. Easterwood

Virginia Polytechnic Institute & State University - Pamplin College of Business

Stacey R. Nutt

Vestek Systems

Abstract

A rational analysis of analyst behavior predicts that analysts immediately and without bias incorporate information into their forecasts. Several studies document analysts' tendency to systematically underreact to information and are inconsistent with rationality. Other studies indicate that analysts systematically overreact to new information or that they are systematically optimistic. This study discriminates between these three hypotheses by examining the interaction between the nature of information and the type of reaction by analysts. The evidence indicates that analysts underreact to negative information, but overreact to positive information. These results are consistent with systematic optimism in response to information.

JEL Classification: G12, G14

Suggested Citation

Easterwood, John C. and Nutt, Stacey R., Inefficiency in Analysts' Earnings Forecasts: Systematic Misreaction or Systematic Optimism?. Available at SSRN: https://ssrn.com/abstract=160348

John C. Easterwood (Contact Author)

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

Dept. of Finance
Blacksburg, VA 24061
United States
540-231-5904 (Phone)
540-231-4487 (Fax)

Stacey R. Nutt

Vestek Systems ( email )

388 Market Street, Suite 700
San Francisco, CA 94111
United States

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