Recession Analysts and Conservative Forecasting

55 Pages Posted: 15 Oct 2013 Last revised: 25 Jun 2014

See all articles by Michael B. Clement

Michael B. Clement

University of Texas at Austin - Department of Accounting

Kelvin Law

Nanyang Technological University (NTU)

Date Written: June 20, 2014

Abstract

This study investigates whether the properties of sell-side analysts' earnings forecasts are associated with the adverse macroeconomic conditions that exist at the time of their initial hire or major promotion. We find that analysts who begin their career in an economic recession are more conservative in their earnings forecasts: they are more pessimistic, less likely to be leaders, deviate less from the consensus, and more (less) likely to issue negative (positive) bold revisions. They are also asymmetrically more likely to respond to bad rather than good news during recessions, when bad news is abundant. Our results are not subsumed by analysts' characteristics and incentives identified in prior literature. Overall, we find that their forecast properties are associated with the adverse macroeconomic conditions at the time of initial hire or major promotion.

Keywords: Analysts, NBER Recession, Conservative, Earnings Forecasts

JEL Classification: D83, G12, G24, J24, J44

Suggested Citation

Clement, Michael B. and Law, Kelvin, Recession Analysts and Conservative Forecasting (June 20, 2014). Available at SSRN: https://ssrn.com/abstract=2307253 or http://dx.doi.org/10.2139/ssrn.2307253

Michael B. Clement

University of Texas at Austin - Department of Accounting ( email )

2110 Speedway, Stop B6400
Austin, TX 78712
United States
512-471-0332 (Phone)
512-471-3904 (Fax)

Kelvin Law (Contact Author)

Nanyang Technological University (NTU) ( email )

Nanyang Business School
Singapore, 639798
Singapore

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