Investor Attention to Salient Features of Analyst Forecasts

49 Pages Posted: 26 Feb 2014

See all articles by Vasiliki E. Athanasakou

Vasiliki E. Athanasakou

Saint Mary's University, Canada - Sobey School of Business

Ana Vidolovska Simpson

London School of Economics & Political Science - Department of Accounting

Date Written: February 2014

Abstract

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

Athanasakou, Vasiliki E. and Simpson, Ana, Investor Attention to Salient Features of Analyst Forecasts (February 2014). Available at SSRN: https://ssrn.com/abstract=2401085 or http://dx.doi.org/10.2139/ssrn.2401085

Vasiliki E. Athanasakou (Contact Author)

Saint Mary's University, Canada - Sobey School of Business ( email )

Sobey Building 311
923 Robie Street
Halifax, Nova Scotia B3H 3C3
Canada

Ana Simpson

London School of Economics & Political Science - Department of Accounting ( email )

United Kingdom

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