How Are Analysts’ Forecasts Affected by High Uncertainty?

46 Pages Posted: 18 Aug 2013 Last revised: 10 Aug 2017

See all articles by Dan Amiram

Dan Amiram

Tel Aviv University - Coller School of Management

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Edward Owens

University of Utah - David Eccles School of Business

Stephen Stubben

University of Utah

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2017

Abstract

This study examines whether key characteristics of analysts’ forecasts — timeliness, accuracy, and informativeness — change when investor demand for information is likely to be especially high, i.e., during periods of high uncertainty. Findings reveal that when uncertainty is high, analysts’ forecasts are more timely but less accurate. However, analysts’ forecasts are also more informative to the market, which is consistent with investors’ demand for timely information, even if it is less accurate. We observe these findings when market prices are increasing and decreasing, consistent with the findings resulting from uncertainty in general rather than just uncertainty associated with market declines. We also examine how timeliness, accuracy, and informativeness change in response to elevated levels of three sources of uncertainty — market, industry, and firm-level. We predict and find that analysts are better able to deal with heightened industry uncertainty, as reflected by greater timeliness with no loss in forecast accuracy. In contrast, analysts have greater difficulty dealing with heightened market uncertainty, as both timeliness and forecast accuracy decline.

Keywords: Financial analysts, earnings forecasts, uncertainty

JEL Classification: G14, M40

Suggested Citation

Amiram, Dan and Landsman, Wayne R. and Owens, Edward and Stubben, Stephen, How Are Analysts’ Forecasts Affected by High Uncertainty? (May 1, 2017). Columbia Business School Research Paper No. 13-68; Simon School Working Paper No. FR 13-24. Available at SSRN: https://ssrn.com/abstract=2311455 or http://dx.doi.org/10.2139/ssrn.2311455

Dan Amiram

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Wayne R. Landsman (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

Edward Owens

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States
8015815732 (Phone)

Stephen Stubben

University of Utah ( email )

1655 E. Campus Center
Salt Lake City, UT 84112
United States

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