Analyst Bias and Mispricing
49 Pages Posted: 2 Sep 2015 Last revised: 5 Aug 2018
Date Written: February 4, 2018
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: Suggested Citation