Investor Attention to Salient Features of Analyst Forecasts
49 Pages Posted: 26 Feb 2014
Date Written: February 2014
We examine whether, and to what extent, investors focus on salient and easy-to-process features in responding to analyst forecasts. We focus on rounding as arguably the most salient forecast feature. We find that while rounding is only marginally associated with forecast accuracy, investors attribute to it undue significance. Investors view rounding as distinctly informative to other analyst characteristics that determine forecast accuracy and the likelihood of rounding. Unlike previous literature, which focuses on rounding at a point in time, we examine rounding patterns across the analyst portfolio and over time. We find that the association between rounding and lower accuracy documented in prior studies is driven only by repeated rounding. We also find that repeated rounding attracts investors’ undue attention at the revision announcement and is associated with a post-revision drift. Our results suggest that the market over-relies on salient features in analyst forecasts as a summary indicator of forecast accuracy.
Keywords: analysts, rounding, limited attention
JEL Classification: G12, G14, G29, M41
Suggested Citation: Suggested Citation