Aggregate Analyst Optimism, Information Habitats, and Asset Prices

35 Pages Posted: 7 May 2019

See all articles by Sarah Khalaf

Sarah Khalaf

Department of Communication Disorders Sciences

Date Written: April 17, 2019

Abstract

This paper investigates the asset pricing implications of the strategic incentives of analysts. I find that deviations between consensus analyst optimism across forecasts and recommendations for the same firm lead to temporary price movements. For example, among firms with differences between recommendation and forecast optimism, those that are predicted to appeal most (least) to retail investors (i.e. high recommendation optimism) underperform (overperform) annually by a risk-adjusted 1.26% (2.99%). Information habitats created by strategic incentives, generate excess coordinated investor demand, and provide the mechanism for which temporary price movements occur. This habitat-based explanation helps shed light on recent puzzling findings concerning analyst opinions and their impact on market return anomalies.

Keywords: Analyst, Optimism, Recommendations, Forecasts

JEL Classification: G14, G17

Suggested Citation

Khalaf, Sarah, Aggregate Analyst Optimism, Information Habitats, and Asset Prices (April 17, 2019). Available at SSRN: https://ssrn.com/abstract=3373993 or http://dx.doi.org/10.2139/ssrn.3373993

Sarah Khalaf (Contact Author)

Department of Communication Disorders Sciences ( email )

Safat, 13060
Kuwait

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