Analyst Forecasts: It Pays to Be Off!

Journal of Investment Management, Forthcoming

INSEAD Working Paper No. 2013/92/AC

27 Pages Posted: 28 Aug 2013

See all articles by Gilles Hilary

Gilles Hilary

Georgetown University - Department of Accounting and Business Law

Charles Hsu

Hong Kong University of Science & Technology

Multiple version iconThere are 2 versions of this paper

Date Written: August 27, 2013

Abstract

We show that analysts who display more consistent forecast errors have a greater effect on stock prices than analysts who provide more accurate but less consistent forecasts. This result leads to three implications. First, consistent analysts are less likely to be demoted to a less prestigious brokerage house and are more likely to be named All Star analysts. Second, analysts strategically "lowball" (that is, deliver downward-biased forecasts) to increase their consistency. This is because lowballing gives management an easier target to beat and, in turn, management grants analysts greater access to company information. Finally, the benefits of both consistency and lowballing increase while those of accuracy decrease when institutional/sophisticated investors are more of a presence in the analyst’s audience.

Suggested Citation

Hilary, Gilles and Hsu, Charles, Analyst Forecasts: It Pays to Be Off! (August 27, 2013). Journal of Investment Management, Forthcoming; INSEAD Working Paper No. 2013/92/AC. Available at SSRN: https://ssrn.com/abstract=2316679

Gilles Hilary (Contact Author)

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Charles Hsu

Hong Kong University of Science & Technology ( email )

Hong Kong
Hong Kong
852-2358-7568 (Phone)
852-2358-1693 (Fax)

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