The Speed With Which Analysts Incorporate Firm-Specific and Industry Information in Their Forecasts: Evidence and Implications

45 Pages Posted: 4 Mar 2019

See all articles by Sami Keskek

Sami Keskek

Florida State University

Senyo Y. Tse

Texas A&M University - Lowry Mays College & Graduate School of Business

Date Written: January 12, 2019

Abstract

We separate analyst forecast revisions into components representing industry-wide and firm-specific news. Using the relation between analyst forecast revisions and upcoming news to estimate how completely analysts incorporate their private information in their forecasts, we show that analysts incorporate a smaller proportion of industry-wide news than firm-specific news in their forecasts, particularly when the underlying news is bad. Post-forecast-revision drift is strongly associated with the private industry-wide information that analysts withhold from their forecast revisions. Furthermore, analysts’ information withholding varies predictably with their incentives. Unlike prior research that attributes post-forecast revision drift to delayed market response to news in forecast revisions, our findings suggest that the drift arises because investors are unable to anticipate the news that analysts withhold from their forecast revisions. Our study sheds light on analysts’ role in conveying firm-specific and industry-wide news to investors and on the implications for post-forecast-revision drift.

Keywords: Analyst Forecasts, Post-Forecast-Revision Drift, Market Underreaction, Firm-Specific Information, Industry-Wide Information

JEL Classification: G14, G29, M41

Suggested Citation

Keskek, Sami and Tse, Senyo Y., The Speed With Which Analysts Incorporate Firm-Specific and Industry Information in Their Forecasts: Evidence and Implications (January 12, 2019). Available at SSRN: https://ssrn.com/abstract=3333318 or http://dx.doi.org/10.2139/ssrn.3333318

Sami Keskek (Contact Author)

Florida State University ( email )

Department of Accounting
College of Business
Tallahassee, FL 32306
United States

Senyo Y. Tse

Texas A&M University - Lowry Mays College & Graduate School of Business ( email )

Wehner 401Q, MS 4353
456C
College Station, TX 77843-4218
United States
979-845-3784 (Phone)

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