Range Has It: Decoding the Information Content of Forecast Ranges

51 Pages Posted: 4 Jun 2016 Last revised: 20 Mar 2018

See all articles by Michael (Minye) Tang

Michael (Minye) Tang

New York University (NYU)

Li Zhang

Rutgers, The State University of New Jersey - Accounting

Date Written: March 16, 2018


Range forecasts have emerged as the predominant form of management forecasts, but prior research has overlooked the information conveyed by forecast ranges. This study fills this void by examining the information content of the extent to which managers’ forecast ranges overlap with the range of individual analysts’ pre-existing estimates (i.e., overlap). We expect managers to signal their superior private information by issuing low-overlap forecasts. We predict and find that, compared with high-overlap forecasts, low-overlap forecasts are associated with stronger market reactions and higher accuracy of management forecasts relative to analyst estimates. Moreover, when responding to low-overlap management forecasts, analysts with prior estimates out of management forecast ranges are more likely to revise into the management forecast range, less likely to revise toward the consensus, and more likely to improve in revised forecast accuracy. Our findings suggest that investors and analysts view low-overlap management forecasts as signals of superior private information.

Keywords: Management forecasts, analyst forecasts, range forecasts, overlap

JEL Classification: M41

Suggested Citation

Tang, Michael and Zhang, Li, Range Has It: Decoding the Information Content of Forecast Ranges (March 16, 2018). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2789025 or http://dx.doi.org/10.2139/ssrn.2789025

Michael Tang

New York University (NYU) ( email )

Henry Kaufman Management Center
44 West 4th Street - Suite 10-84
New York, NY 10012-1126
United States
(212) 998-0087 (Phone)
(212) 995-4004 (Fax)

Li Zhang (Contact Author)

Rutgers, The State University of New Jersey - Accounting ( email )

1 Washington Park, Room 996
Newark, NJ 07102
United States

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