The Efficiency of Earnings Forecast Pricing
42 Pages Posted: 31 Aug 2013
Date Written: July 31, 2013
Prior research has suggested that the information content associated with analysts’ forecast revisions is not immediately incorporated into a firm’s stock price. We find that the apparent anomaly is concentrated in low-priced firms that receive favorable earnings revisions. Variables (such as analyst coverage and celebrity status) cannot reliably explain variations in price formations. Finally, we find that the magnitude of the post-forecast revision drift has decreased after 2002. Overall, our results suggest that the analysts’ forecast revisions anomaly can be explained by a combination of random statistical variations and transaction costs.
Keywords: Analyst forecast, Post-forecast revision drift, Market efficiency, Transaction costs
JEL Classification: G11, G14
Suggested Citation: Suggested Citation