The Interpretation of Unanticipated News Arrival and Analysts’ Skill
50 Pages Posted: 8 May 2013 Last revised: 12 Dec 2015
Date Written: December 12, 2015
Analysts’ functions are divided into discovery and interpretation roles, but separating between the two is non-trivial. We conjecture that analysts’ interpretation skill can be gauged by their forecast revisions following material unanticipated news — in particular following non-earnings 8-K reports, which arrive at the market unexpectedly. We establish that unanticipated 8-Ks are informative for analysts, and find that analysts who are more likely to revise their forecasts following unanticipated 8-Ks provide more timely and accurate forecasts. We document a positive association between analysts’ tendency to react to unanticipated 8-Ks and market reaction to their recommendation changes, suggesting investors prefer these analysts’ opinions.
Keywords: Analysts, Corporate Disclosure, Forecast Error, Unanticipated News, Timeliness, 8-K
JEL Classification: M4, G14, G18, G34, K22
Suggested Citation: Suggested Citation