Policy Uncertainty and Analyst Performance
51 Pages Posted: 3 Dec 2014 Last revised: 1 May 2017
Date Written: April 2, 2017
Motivated by recent high-profile instances of policy uncertainty in the U.S., this study examines whether policy uncertainty affects the forecasting performance of financial analysts. We conjecture that policy uncertainty increases the complexity of the forecasting task for analysts, resulting in less accurate earnings forecasts. We find robust evidence that forecast accuracy decreases in the presence of policy uncertainty. We also document that the negative association between forecast accuracy and policy uncertainty is more pronounced when policy uncertainty is particularly high and when firms are more sensitive to policy uncertainty. Given the importance of the intermediation role played by financial analysts, these findings have implications for understanding factors that affect information dissemination in capital markets.
Keywords: political uncertainty; equity analysts; EPS forecasts
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