Analyst Bias and Mispricing

49 Pages Posted: 2 Sep 2015 Last revised: 5 Aug 2018

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area; Yale University - International Center for Finance; National Bureau of Economic Research (NBER)

Gergana Jostova

George Washington University - Department of Finance

Alexander Philipov

George Mason University - Department of Finance

Date Written: February 4, 2018

Abstract

Predictable biases in analyst forecasts, both conservative and optimistic, distort share prices, but only for firms with hard-to-forecast earnings---those with extreme past returns, credit risk, idiosyncratic volatility, and other attributes linked to 14 popular anomalies. The prevalence of analyst optimism (and the rarity of analyst conservatism) among these firms emerges as a likely explanation for their overpricing and subsequent negative alphas. The profitability of anomaly strategies disappears once we account for analyst bias.

Keywords: Analyst bias, credit risk, anomalies, market efficiency, behavioral

JEL Classification: G14, G11, G12, G02

Suggested Citation

Grinblatt, Mark and Jostova, Gergana and Philipov, Alexander, Analyst Bias and Mispricing (February 4, 2018). 7th Miami Behavioral Finance Conference 2016. Available at SSRN: https://ssrn.com/abstract=2653666 or http://dx.doi.org/10.2139/ssrn.2653666

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-1098 (Phone)
310-206-5455 (Fax)

Yale University - International Center for Finance

Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gergana Jostova (Contact Author)

George Washington University - Department of Finance ( email )

2201 G St NW
Funger Hall, Suite 501
Washington, DC 20052
United States
202-994-7478 (Phone)

HOME PAGE: http://home.gwu.edu/~jostova

Alexander Philipov

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

HOME PAGE: http://mason.gmu.edu/~aphilipo

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