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Analyst Forecast Revisions and Market Price Formation

Parker Center for Investment Working Paper

43 Pages Posted: 19 Mar 2002  

Cristi A. Gleason

University of Iowa - Department of Accounting

Charles M.C. Lee

Stanford University - Graduate School of Business

Date Written: March 11, 2002

Abstract

We document several factors that help explain cross-sectional variations in the delayed price response to individual analyst forecast revisions. First, the market does not make a sufficient distinction between those analysts providing new information and others simply "herding" toward the consensus. Second, the market responds more completely to "celebrity" analysts, and under-weights revisions by obscure, but highly accurate, analysts. Third, controlling for firm size, the market price adjustment is more complete for firms with wider analyst coverage. Moreover, a significant portion of the delayed price response is corrected around future earnings news events, particularly forecast revisions by other analysts. Taken together, these findings show that qualitative aspects of an earnings signal can affect the speed and efficacy of the price formation process.

Keywords: Analyst, earnings forecasts, estimates, revisions, momentum market efficiency, expected returns, investments

JEL Classification: G12, G14, G21, G24, G29, M41

Suggested Citation

Gleason, Cristi A. and Lee, Charles M.C., Analyst Forecast Revisions and Market Price Formation (March 11, 2002). Parker Center for Investment Working Paper. Available at SSRN: https://ssrn.com/abstract=303980 or http://dx.doi.org/10.2139/ssrn.303980

Cristi Gleason (Contact Author)

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

Charles Lee

Stanford University - Graduate School of Business ( email )

Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)

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