Terrorist Attacks, Analyst Sentiment, and Earnings Forecasts
48 Pages Posted: 13 Dec 2015 Last revised: 26 Apr 2018
Date Written: April 5, 2018
This study examines whether sell-side equity analysts located near major terrorist attacks and mass shootings issue more pessimistic earnings forecasts. Using multiple measures of forecast pessimism, we find that analysts who are local to these events issue forecasts that are more pessimistic than the consensus forecast. This effect is stronger when the analyst is closer to the event, and when the analyst is located in a low-crime region. We also find a similar but weaker effect around the one-year anniversaries of extreme events. The earnings forecasts of affected analysts are more accurate, since pessimism induced by extreme negative events partially mitigates the well-documented optimism bias among analysts. Overall, our results suggest that the mood and forecasts of sell-side equity analysts are influenced by exogenous and extreme negative events.
Keywords: Analyst sentiment, forecast bias, forecast accuracy, extreme events.
JEL Classification: G14, G24
Suggested Citation: Suggested Citation