Analyst Underreaction and the Post-Forecast Revision Drift

53 Pages Posted: 16 Mar 2015

See all articles by Po-Chang Chen

Po-Chang Chen

Miami University of Ohio - Richard T. Farmer School of Business Administration

Ganapathi S. Narayanamoorthy

Tulane University - Accounting & Taxation

Theodore Sougiannis

University of Illinois at Urbana-Champaign - Department of Accountancy

Hui Zhou

University of Melbourne - Melbourne Business School

Date Written: February 27, 2015

Abstract

We find that analysts exhibit an underreaction bias when revising their forecasts and that the post-forecast revision drift (PFRD) manifests because investors appear to fixate on the biased forecast revision numbers. We further confirm the association between the bias and the PFRD by demonstrating similar patterns of cross-sectional and time-series variation in both analyst underreaction and the PFRD. In contrast to the extant literature attributing the PFRD to investors’ underreaction to analyst forecast revisions, our findings suggest that the PFRD arises from the combined effect of analyst underreaction in the forecast revision process and investor fixation on the revision numbers.

Keywords: Analyst underreaction, post-forecast revision drift

JEL Classification: G11, G14, G24

Suggested Citation

Chen, Po-Chang and Narayanamoorthy, Ganapathi S. and Sougiannis, Theodore and Zhou, Hui, Analyst Underreaction and the Post-Forecast Revision Drift (February 27, 2015). Available at SSRN: https://ssrn.com/abstract=2578757 or http://dx.doi.org/10.2139/ssrn.2578757

Po-Chang Chen

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

3086 Farmer School of Business
Oxford, OH 45056
United States

Ganapathi S. Narayanamoorthy (Contact Author)

Tulane University - Accounting & Taxation ( email )

United States

Theodore Sougiannis

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

360 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0555 (Phone)
217-244-0902 (Fax)

Hui Zhou

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

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