The Interpretation of Unanticipated News Arrival and Analysts’ Skill

50 Pages Posted: 8 May 2013 Last revised: 12 Dec 2015

See all articles by Amir Rubin

Amir Rubin

Simon Fraser University (SFU) - Beedie School of Business; Interdisciplinary Center (IDC) Herzliyah

Benjamin Segal

Fordham University; Hebrew University of Jerusalem

Dan Segal

Interdisciplinary Center (IDC) Herzliyah

Date Written: December 12, 2015

Abstract

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

Rubin, Amir and Segal, Benjamin and Segal, Dan, The Interpretation of Unanticipated News Arrival and Analysts’ Skill (December 12, 2015). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2261953 or http://dx.doi.org/10.2139/ssrn.2261953

Amir Rubin

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

Benjamin Segal (Contact Author)

Fordham University ( email )

113 West 60th Street
New York, NY 10023
United States

Hebrew University of Jerusalem

Dan Segal

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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