Intangible Information and Analyst Behavior

45 Pages Posted: 9 Mar 2011

See all articles by Lei Sun

Lei Sun

School of Finance, Shanghai University of Finance and Economics

K.C. John Wei

Hong Kong Polytechnic University

Date Written: March 8, 2011

Abstract

In this paper, we study whether firm intangible information affects analyst behavior. We find direct evidence that when analysts make more judgment-intensive decisions, such as issuing stock recommendations, they overweight intangible information, leading to overreaction to intangible information. On the contrary, when analysts make less judgment-intensive decisions, such as earnings per share (EPS) forecasts, there is no such evidence of overreaction. More specifically, analyst recommendations are much more sensitive to intangible information, while EPS forecasts are more sensitive to tangible information. The sensitivity of long-term growth forecasts to intangible and tangible information fall in between. We also test and find that the overconfidence bias in analyst recommendations contributes to the market overreaction to intangible information. Our results appear to be consistent with the overconfidence hypothesis put forth by Daniel and Titman (2006).

Keywords: intangible information, overconfidence bias, analyst stock recommendations, earnings per share (EPS) forecasts

JEL Classification: G12, G14, G17, G24

Suggested Citation

Sun, Lei and Wei, Kuo-Chiang (John), Intangible Information and Analyst Behavior (March 8, 2011). Available at SSRN: https://ssrn.com/abstract=1781172 or http://dx.doi.org/10.2139/ssrn.1781172

Lei Sun (Contact Author)

School of Finance, Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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